Updates from the GFG Alliance
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Sanjeev Gupta’s timeline for refinancing $ 5 billion in borrowings from collapsed financial firm Greensill Capital has shrunk dramatically as cooling commodities markets threaten his battle to preserve his sprawling metal conglomerate.
Gupta’s GFG Alliance borrowed heavily from supply chain finance firm Greensill Capital, which collapsed in March after GFG began to default on loans over $ 5 billion.
Efforts to refinance that debt were further complicated in May when the UK’s Serious Fraud Office launched an investigation into suspicions of fraud, trade fraud and money laundering at GFG, which employs 35,000 people in the UK. world in metal factories from Wales to Australia.
Despite the investigation, GFG has secured backing from US debt investor White Oak Global Advisors, an existing creditor who is leading the company’s refinancing efforts.
In a corporate podcast aired last month, Gupta told employees that a new loan deal for his Australian business was “essentially pretty much done”, adding that closing the deal would be “a great achievement” and the first step in a larger refinancing. .
However, finalization of the loan has stalled since, with GFG management telling employees that it is now scheduled for mid-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 refinance.
Soaring metal prices came to GFG’s rescue earlier this year, spurring activity in the critical months following the Greensill collapse. In the August podcast, Gupta said his business was “completely defying gravity” due to high prices for iron ore and steel, adding that he didn’t think that tailwind was “going away quickly.”
Iron ore prices plummeted this month, however, plunging more than 50% from their recent peak amid concerns over a slowdown in China’s construction industry. This could prove particularly problematic for the Australian refinancing as GFG’s iron ore mining operations are in the region. Lower prices generally reduce the amount of credit that can be extended to mining companies under âbase-loanâ loan facilities.
GFG declined to comment. White Oak said, “Funding is available for the company and GFG is considering all options given the volatility of iron ore prices.”
Gupta’s Liberty Steel business in the UK is the UK’s third largest steel producer. Major UK factories have operated intermittently this year, relying heavily on government paid holidays which will end this month. This week, GFG reached a deal with unions to continue paying workers on leave 80 percent of their salary, although the deal is currently only for October, according to two people familiar with the situation.
“Activities to finance a restart of [UK] steelmaking in mid-October remains ongoing, âsaid an internal communication, a copy of which was seen by the Financial Times.
Soaring electricity prices in the UK have also affected the profitability of the energy intensive industry.
The refinancing tests the patience of Credit Suisse, whose clients have $ 1.2 billion in exposure to Gupta companies because the bank has invested their money in complex products organized by Greensill.
After initially passing a flurry of court orders to push Gupta’s core business into insolvency in March, Credit Suisse changed tack and suspended âliquidation petitions,â in a bid to give the time to raise new loans and repay their exposure.
Credit Suisse is counting on an initial repayment from Gupta to ease the pressure of 1,000 clients invested in the funds, out of the $ 145 million they are charged to cover collection costs. The bank’s negotiators are growing frustrated with the time it took Gupta to complete the Australian refinance, which would bring in $ 200 million and delayed Credit Suisse towards a wider distribution of $ 1 billion to its investors.
“Things have gone very well on the Australian refinance,” said one person involved in the turnaround process. âIt was supposed to be sealed a month ago. We thought we had an agreement in place but we are losing patience with Gupta. We have proposed to extend the good faith winding-up orders.
Greensill’s banking subsidiary in Germany also has â¬ 2.8 billion exposure to GFG, according to a creditors report filed this year. Greensill Capital itself has an additional $ 230 million exposure on its balance sheet, although the UK entity was created primarily to act as an intermediary between borrowers and lenders. Italy’s Aigis Banca, which collapsed in the wake of the Greensill collapse, was also less exposed to Gupta’s industrial and commodity trading activities.