British consortium GFG Alliance said on Wednesday it has signed a binding agreement to acquire deeply indebted Australian steel company Arrium Ltd, trumping a South Korean group backed by steel giant Posco.

The British group plans to modernise the ageing steelworks, together with Arrium's mining and steel distribution businesses, after it collapsed last year following a downturn in steel and iron ore markets.

"We aim to leverage the advantages of integration across the value chain, from raw materials and metal production to high-end engineered products," Sanjeev Gupta, executive chairman of industrial turnaround company Liberty House, said in an email to Reuters.

Liberty House operates together with energy and commodities business SIMEC under the $9.4 billion Gupta Family Group (GFG) Alliance.

The agreement follows a competitive bidding process that saw a Seoul-based private equity syndicate led by Newlake Alliance and JB Asset Management chosen on June 15 as the preferred bidder, only to have GFG return with a revised offer.

Mark Mentha, the head of financial administration company KordaMentha, working on behalf of creditors owed more than $2 billion, said GFG Alliance had submitted a modified offer for the Arrium businesses on Tuesday night.

"Taking all factors into consideration, including the timeframes required to complete a sale, KordaMentha and our sale advisers Morgan Stanley decided that GFG was an option superior to the conditional offer of the Korean alliance," Mentha said. The sale is subject to approval by Arrium's committee of creditors, which meets next week, Mentha said.

Arrium collapsed in April 2016 with A$2.8 billion ($2.13 billion) in debt after creditors rejected a $927 million bailout proposal by private equity group GSO Capital Partners that would have paid no more than 55 cents on the dollar on their claims. A purchase price was not disclosed.

However, both bidders indicated during the sales process that they were prepared to spend more than A$1 billion upgrading Arrium's Whyalla steelworks in South Australia state and on its mini-mills, steel distribution and iron ore mining divisions.

Australian treasurer Scott Morrison said he expected to clear the transaction with the federal government's Foreign Investment Review Board later on Wednesday.