Sanjeev Gupta’s $ 500 million purchase of Europe’s largest aluminum smelter from Rio Tinto in 2018 was the steel mogul’s first major industrial deal funded by traditional bank debt.
Gupta’s GFG Alliance, a sprawling network of hundreds of private companies with interests spanning steel, aluminum, mining, financial services and real estate, publicly announced the term loan of five years with a syndicate of banks. Behind the scenes, however, GFG had approached UK finance firm Greensill and US asset manager BlackRock for additional funding via a complex chain of holding companies, according to two sources with direct knowledge and documents seen by Reuters.
The additional loan allowed Gupta to minimize the amount of money it had tied up in buying the Dunkirk aluminum smelter in France, the two sources said. They said the original syndicate of banks and commodity trader Trafigura were unaware of the additional financing, which Gupta used to cash in some of the capital he had pledged for the foundry purchase. A spokesperson for the GFG Alliance declined to comment on its financial arrangements. The directors of Trafigura and Greensill declined to comment.
GFG Alliance’s complex corporate structures and funding arrangements are proving problematic as Gupta seeks new sources of funding following Greensill’s insolvency last month. Gupta is in talks with the UK government, where it employs around 3,000 people, about obtaining state financial support for its businesses there, but some officials say they are suspicious.
“We are the custodians of taxpayers’ money and the very opaque structure of the GFG group is cause for concern,” UK Business Secretary Kwasi Kwarteng said on Tuesday. “We can’t give taxpayer money, basically put it in a black box where we don’t know what the money will be used for.”
The GFG Alliance spokesperson declined to comment on Kwarteng’s comments or discussions with the government. GFG has previously said it is trying to negotiate a standstill deal with Greensill’s directors, which would mean it could suspend payment of its debt to Greensill and refinance its business.
The supply chain finance company was a major source of funding for Gupta as it bought out ailing metal fabrication facilities, creating a conglomerate with more than 35,000 employees in 30 countries. Greensill repackaged the loans it made to GFG Alliance into bonds that could be sold to investors. The funding that GFG Alliance secured from Greensill for the French foundry was in the form of a $ 77.5 million promissory note while BlackRock lent $ 115 million, according to both sources and GFG presentations seen. by Reuters.
A presentation of the foundry’s financing structure lists 9 legal persons in several jurisdictions, including Luxembourg, France and the Netherlands, with a straight line to Sanjeev Gupta. In January 2019, when the BlackRock loan was made available, Gupta used the new financing to replace some of the capital it had pledged for the Dunkirk smelter, allowing it to access at least $ 50 million in species, two directly informed sources said.
This equity was part of the initial loan agreement of the banking syndicate. GFG Alliance was to pay a third of the purchase price of the smelter and the banks, along with Trafigura, have loaned $ 350 million, according to a presentation seen by Reuters and the two sources. Lenders, including Natixis and BNP Paribas, have not been informed of additional loans from Greensill and BlackRock, the sources said.
Reuters could not determine whether the syndicated loan deal required GFG Alliance to seek permission from the banks and Trafigura before raising additional funds for the smelter. Natixis and BNP Paribas declined to comment on their loan agreement with GFG Alliance.
BlackRock’s $ 115 million loans were not repaid when due in January of this year and were extended for two years according to a third source. The loan plus interest stands at $ 131 million, according to a March 2021 document showing GFG’s debts and the valuation of its businesses.
(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)