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Sanjeev Gupta’s timetable for refinancing $5bn of borrowing from collapsed finance firm Greensill Capital has slipped significantly, with cooling commodity markets threatening his battle to preserve his sprawling metals conglomerate.
Gupta’s GFG Alliance borrowed heavily from supply-chain finance firm Greensill Capital, which collapsed in March after GFG started to default on loans in excess of $5bn.
Efforts to refinance this debt were further complicated in May when the UK’s Serious Fraud Office launched an investigation of suspected fraud, fraudulent trading and money laundering at GFG, which employs 35,000 people around the world in metals plants from Wales to Australia.
Despite the probe, GFG has garnered support from US debt investor White Oak Global Advisors, an existing creditor that is leading efforts to refinance the business.
In an in-house corporate podcast broadcast last month, Gupta told employees that a new loan agreement for its Australian business was “basically virtually done”, adding that closing the deal would be “a great achievement” and the first step in a wider refinancing.
Finalising the loan has since stalled, however, with GFG’s management guiding employees that it is now on target for the middle of October, according to several people familiar with the details. One of the people added that falling commodity prices had hampered White Oak’s efforts to convince other lenders to join the refinancing.
Surging metals prices rode to the rescue of GFG earlier this year, boosting the business in the critical months following Greensill’s collapse. In the August podcast, Gupta said that his business was “defying gravity completely” because of high iron ore and steel prices, adding that he did not think this tailwind “would disappear quickly”.
Iron ore prices subsequently crashed this month, however, plunging more than 50 per cent from their recent peak because of worries about a slowdown in the Chinese construction industry. This could prove particularly problematic for the Australian refinancing because GFG’s iron ore mining operations are in the region. Falling prices typically cut the amount of credit that can be extended to mining companies under “borrowing base” loan facilities.
GFG declined to comment. White Oak said: “Financing is available to the company and GFG is considering all the options given the volatility in iron ore prices.”
Gupta’s Liberty Steel business in the UK is Britain’s third-largest steelmaker. Key UK plants have operated intermittently this year, relying heavily on government furlough payments that will cease this month. This week, GFG struck a deal with unions to keep paying furloughed employees 80 per cent of their salary, though the agreement is currently only for October, according to two people familiar with the situation.
“Activities to fund a restart of [UK] steel making in mid-October remain ongoing,” said an internal communication, a copy of which has been seen by the Financial Times.
Surging power prices in the UK have also hit profitability across the energy-intensive industry.
The refinancing is testing the patience of Credit Suisse, whose clients have $1.2bn of exposure to Gupta’s businesses because the bank invested their money in complex products arranged by Greensill.
After initially pushing through a flurry of court orders to push Gupta’s core businesses into insolvency in March, Credit Suisse changed tack and paused the “winding up petitions”, in a bid to give the business time to raise new loans and repay their exposure.
Credit Suisse is banking on a first repayment from Gupta to allay pressure from 1,000 clients invested in the funds, over the $145m they are being charged to meet recovery costs. Negotiators at the bank are growing increasingly frustrated by the time it has taken for Gupta to wrap up the Australian refinancing, which would return $200m and has delayed Credit Suisse making a wider $1bn distribution to its investors.
“Things have gone very quiet on the Australian refinancing,” said a person involved in the recovery process. “This was supposed to be sealed a month ago. We thought we had an agreement in place but we are losing patience with Gupta. We offered to extend the winding up orders in good faith.”
Greensill’s banking subsidiary in Germany also has €2.8bn of exposure to GFG, according to a creditors’ report filed this year. Greensill Capital itself has a further $230m of exposure on its balance sheet, even though the UK entity was primarily set up to act as a middleman between borrowers and lenders. Italy’s Aigis Banca, which collapsed in the wake of Greensill’s unravelling, also had a smaller amount of exposure to Gupta’s industrial and commodities trading businesses.