InfraBuild’s credit flagged by Fitch

New York-based Fitch Ratings has downgraded a default rating for steel producer and scrap recycler InfraBuild Australia Pty Ltd. based on the financing woes of its parent company, the United Kingdom-based GFG Alliance. Meanwhile, a March 15 report from the London-based Financial Times says some GFG employees had been skeptical of a percentage of the invoices that helped fund GFG via its Greensill Capital supply chain financing system.

On the credit monitoring front, Fitch Ratings says InfraBuild’s Long-Term Issuer Default Rating (IDR) has been moved into the “BB-“ category with “Rating Watch Negative (RWN)” status. The agency also has placed the “BB” rating on the steel producer’s $325 million senior secured notes due in 2024, likewise earning those notes RWN status.

“The RWN reflects increasing uncertainty from the funding issues faced by GFG Alliance,” writes Fitch on March 15. “GFG Alliance’s financing has been affected by the collapse of Greensill Capital, which filed for administration. Problems at GFG Alliance could have a contagion effect on its various companies, including the Whyalla [Australia] steelworks and InfraBuild, and it may increase pressure on InfraBuild's liquidity and disrupt the timely supply of billets and structural steel.”

Relative to the Australian GFG subsidiary’s longer-term future, Fitch adds that it “believes that InfraBuild’s loan documents and collateral provide adequate protection for creditors within the restricted group. InfraBuild’s importance in the Australian construction sector as the sole manufacturer of long steel products would allow some support from suppliers and customers to operate without detrimental changes to existing contracts. Demand for long steel product is also robust due to government stimulus, which will support a healthy level of [earnings] for InfraBuild in the financial year ending June 2021.”

In the short term, the March 15 Financial Times article provides some new information to metals industry participants who have been trying to determine whether GFG is a victim of Greensill’s collapse or whether it was an underlying cause.

According to the report, some GFG Alliance invoices that helped underpin the company’s supply chain financing were referred to by employees contacted by the newspaper as having come from “friends of Sanjeev,” referring to GFG chair Sanjeev Gupta. That accusation was first reported by the Financial Times in late February.

In the new article, the newspaper claims Greensill Capital had a “strict policy against financing trades between related parties.” However, recent examinations of sales invoices have found a sizable one tied to a board member of GFG’s charitable foundation and others tied to former GFG and Liberty Steel employees.

The newspaper also states that several GFG Alliance companies and the three “friends of Sanjeev” firms involved in issuing the questionable invoices “all had their 2019 accounts audited by the same small accountancy firm” based in London.

InfraBuild, Liberty Steel and Alvance (an aluminum producer) are the three metals production business units of the GFG Alliance. Media reports have indicated one Liberty Steel electric arc furnace (EAF) mill in the U.K. has scaled back production after facing difficulties paying upfront for ferrous scrap feedstock.