Dunkirk foundry agreement opens window on GFG’s complex financing network

LONDON (Reuters) – 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 bank debt traditional.

FILE PHOTO: The GFG Alliance flag flies following a £ 330million deal to buy Britain’s last aluminum smelter at Fort William Lochaber in Scotland, Britain December 19, 2016 REUTERS / Russell Cheyne

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 five-year term loan with a syndicate of banks.

Behind the scenes, however, GFG had tapped UK finance firm Greensill and US asset manager BlackRock for additional funding via a complex chain of holding companies, according to two sources with first-hand knowledge and documents viewed 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 was unaware of the additional financing, which Gupta used to cash in some of the equity he had pledged for the foundry purchase.

A spokesperson for 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 he employs around 3,000 people, about state financial support for his 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 was of concern,” UK Business Secretary Kwasi Kwarteng said on Tuesday.

“We can’t give taxpayers’ money, basically putting it in a black box where we don’t know what that money will be used for.”

The GFG Alliance spokesperson declined to comment on Kwarteng’s remarks or discussions with the government.

GFG has previously said it is trying to negotiate a standstill deal with Greensill directors, which would mean it could suspend its debt payments to Greensill and refinance its business.

The supply chain finance company has been a major source of funding for Gupta, as it bought ailing metal fabrication facilities, creating a conglomerate of more than 35,000 employees in 30 countries. Greensill repackaged loans 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 funding structure lists 9 corporate entities 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 equity it had pledged for the Dunkirk smelter, giving it access to at least $ 50 million. in cash, said two sources with direct knowledge.

This stake was part of the banking syndicate’s initial loan agreement. GFG Alliance was to pay a third of the purchase price of the smelter and the banks, along with Trafigura, have lent $ 350 million, according to a presentation seen by Reuters and the two sources.

Lenders which included Natixis and BNP Paribas were not notified of the 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 loan was not repaid when it matured in January this year and was extended for two years according to a third source.

The interest-plus loan stands at $ 131 million, according to a March 2021 document showing GFG’s debts and valuation of its business.

Reporting by Pratima Desai; edited by Veronica Brown and Carmel Crimmins

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