Greensill Bank used state-backed loans from three European governments to reduce its exposure to companies owned by Sanjeev Gupta, highlighting the extent of the potential taxpayer exposure to the metals magnate’s troubled business empire.
The scheme, described in documents seen by the Financial Times, provides insight into the tactics that Greensill Bank employed as it tried to pacify regulators concerned about the risk from loans to Gupta’s GFG Alliance.
Supply chain finance group Greensill Capital collapsed into administration in March, triggering an international political and financial scandal. The lender’s ties to Gupta’s companies are currently the focus of a criminal investigation by the UK’s Serious Fraud Office into GFG.
Last year, Greensill’s Bremen-based banking subsidiary faced increasing pressure from German financial watchdog BaFin to curtail its extensive lending to GFG.
In response, Greensill Bank devised a plan to use government guarantees granted under Covid economic measures to offset its credit risk, according to a report by the bank’s administrator.
At the end of July 2020 Greensill Bank wrote to BaFin outlining a plan under which government-backed loans extended to three GFG companies from France, Italy and the Czech Republic would be used as cash collateral against the bank’s existing loans to GFG, according to the report from administrator Michael Frege of German law firm CMS Hasche Sigle.
Greensill Bank’s credit risk to GFG would be offloaded to the governments, the report explains. At the time of Greensill’s collapse GFG companies owed its Bremen-based bank more than €2.8bn, according to the administrator’s report.
GFG companies in France, Italy and the Czech Republic obtained four loans worth a combined €190m, with the respective governments providing guarantees of 80 or 90 per cent of the value of the loans.
Lawyers working for the administrator are examining the validity of the loan guarantees, according to the report.
The loans were granted in addition to taxpayer-backed loans worth £400m extended to eight Gupta-linked companies under Britain’s Coronavirus Large Business Interruption Loan Scheme. The FT has previously reported that Gupta restructured his businesses last year to maximise the amount of UK taxpayer-backed loans he could obtain from the scheme.
In France, state investment bank BPI backed two loans, of €17m and €10m, that Greensill Bank made to Alvance Aluminium Group. Liberty Magona Srl which forms part of GFG’s steel operations, obtained an €86m loan, backed by Italy’s Sace export credit agency. Meanwhile in the Czech Republic, GFG’s steel operations Liberty Ostrava received a €76m loan backed by the country’s export credit agency, Egap.
The entire group was rocked by the collapse of Greensill, its biggest lender. GFG is now trying to refinance and pay back creditors.
Greensill Bank’s management is under criminal investigation on suspicion of balance sheet manipulation, following a complaint from BaFin, which in early March ordered a moratorium on the bank’s business. A forensic audit, carried out by KPMG found that Greensill Bank “was unable to provide evidence of the existence of receivables in its balance sheet that it had purchased from the GFG Alliance”.
GFG and Greensill declined to comment.