Opaque company structures and questionable transactions at the heart of Sanjeev Gupta’s GFG Alliance are driving public and private sector lenders away, leaving a major funding gap after Greensill’s collapse.

The alliance, a loose network of companies with ties to metals tycoon Gupta, has been eagerly seeking new sources of financing after the downfall of main funding partner Greensill.

GTR has spoken to numerous trade finance industry sources about whether private sector lenders are prepared to replace Greensill as a source of funding to Gupta’s metals trading empire.

“From what we’ve seen, there is zero appetite left in the market, and understandably so,” says one source, a lender involved in providing trade and supply chain finance services that has declined opportunities to do business with GFG Alliance companies in recent weeks.

“It’s just a non-starter for us; the name is so toxic now. Everyone knows what’s gone on, it’s been all over the media, and I can’t imagine any party is going to be very interested at all in working with the Gupta family any more.”

There are similar concerns in the public sector. In the UK, where Gupta’s Liberty Steel Group owns facilities across the country, business secretary Kwasi Kwarteng told a parliamentary committee in April that a request for a £170mn emergency government loan had been rejected due to the “very complicated” nature of GFG’s financial health and corporate structure.

“As Mr Gupta says, they are billions and billions of pounds in debt,” Kwarteng said. “This group is completely opaque as far as its financial position is concerned. We do not know the full extent of its liabilities.

“The idea that the British government or any British minister would sign a cheque to this group for £170mn is very irresponsible.”

Kwarteng explained that because the request came from the worldwide GFG Alliance rather than from any UK-based Liberty entity, there were concerns over “where that money might eventually go”.

Liberty’s UK steel entities are “part of a much wider group, which has financial problems that we have not really got to the bottom of”, the minister said. “As I understand it, there are creditors already trying to get some sort of recourse from the [group].”

When contacted by GTR, a GFG Alliance spokesperson said most of its portfolio is “performing well and generating positive cash flow”.

“Our primary steel and mining operations in Europe and Australia are booking record profits and we have adequate funding for our current needs. We are taking prudent steps across our global portfolio to manage resources while we refinance the businesses,” the group says in a statement provided on April 20 but initially circulated at the end of March.


Controversial transactions

Concerns around Liberty Commodities, the main trading arm of Gupta’s group, were circulating long before Greensill’s collapse.

Bloomberg reported last week that from 2016 onwards, at least five major lenders exited relationships with Liberty following irregularities or problems around trade documentation.

It says Sberbank, Macquarie Group, Commonwealth Bank of Australia, ICBC Standard Bank and Goldman Sachs all decided to stop working with the company around that time.

Sberbank, for instance, was reportedly unable to locate nickel it had financed on Liberty’s behalf, saying in a statement that “certain discrepancies were spotted within documentation and logistical data, which made Sberbank discontinue all operations with the company”.

It had completely unwound all Liberty-related transactions by early 2019, Bloomberg says, and the bank confirmed to GTR it had suffered no financial loss as a result.

Other issues cited by Bloomberg include attempts to present what appeared to be duplicate bills of lading to ICBC Standard Bank, and warnings from a warehouse contact over a credit line extended by Goldman Sachs.

None of the lenders mentioned provided further comment when contacted by GTR, but sources close to two of the relevant transactions say all business was exited at the time and no further transactions involving Liberty Commodities have been entered into since.

Separately, industry sources have expressed concern to GTR over the apparent use of trade finance intermingled with GFG Alliance acquisitions.

Argus Media revealed in March that Liberty Aluminium – another Gupta-owned metals company – bought US$50mn-worth of inventory from a smelter in Dunkirk the day before acquiring it from Rio Tinto in December 2018.

That cargo was immediately sold onto two other companies with links to Liberty, with those on-sale transactions funded by Gupta’s Wyelands Bank.

In effect, the transaction meant Gupta could use equity from those Wyelands deposits to support the acquisition, while also reducing the price of the asset by US$50mn.

The deal has since been plagued by disputes, including a complaint from Rio Tinto over “non-payment of customary post-closure adjustments”.

At the same time, a group of lenders that put US$350mn towards the transaction – Bank of America Merrill Lynch, Barclays, BNP Paribas, Natixis and trading giant Trafigura – has increasingly threatened legal action against Liberty over non-payment, or sought to offload the debt.

None of those lenders commented on whether they were aware of the separate US$50mn aluminium purchase, but one banking industry source said: “If we found ourselves in a position where working capital was actually being used for acquisition capital, we would have exited.”

“It’s a basic question of trust,” the source says. “If they were using commodity repos to raise working capital, and then it turns out they’re embarking on risky acquisitions, that’s not what you’ve signed up for.”

Liberty Commodities said in a statement this month that it “has ongoing banking relationships with separate financial institutions”.


Invoice suspicions

After 2016, GFG Alliance’s loss of banking relationships resulted in a growing reliance on Greensill to continue providing funding. At the time of Greensill’s collapse, GFG Alliance had estimated debts of nearly US$5bn to the London-headquartered lender.

In recent weeks, however, fears have arisen that Gupta companies relied on dubious financing products and, potentially, on fraudulent invoices as a means of generating liquidity – leaving banks more reluctant to fill the void left by Greensill.

Part of those concerns centre on the controversial receivables financing product offered by Greensill, whereby hypothetical invoices based on anticipated business would be packaged up, insured and sold to investors as a means of raising capital.

Though future receivables are not unheard of in trade finance, experts say Greensill’s use of the product with GFG Alliance and other corporates went well beyond industry norms – in some cases providing finance against invoices from customers with whom no trading relationship had ever existed.

Since then, an investigation by the FT has found that Greensill’s administrators, Grant Thornton, have been unable to verify certain invoices issued by Liberty Commodities.

Gupta insists those invoices were part of future receivables schemes, but the newspaper says they refer to historic trading activity with four European metals businesses – all of which deny doing business with Liberty Commodities – raising suspicions of fraud.

Gupta again refuted “any suggestion of wrongdoing” in a recent letter to the FT, but the claims are proving a further deterrent to trade finance lenders.

“If you see fraudulent invoices being created, that’s obviously a massive red flag,” says one banking industry source. “It speaks to many things, including what else might be hidden. For companies that engage in that kind of behaviour, it’s a short order for exit [by banks].”

Another banking source adds that “allegations of fraud [leave GFG Alliance] in a very difficult position”.

“There is a viable, real business there,” they say. “But banks need to be comfortable not just with the credit of their customer, but also the governance. It’s a basic question of trust.”

The GFG Alliance spokesperson did not respond when asked whether the company denies any current invoices were issued in respect of metals traders that the group had not transacted with.