Greensill Capital’s unravelling entangles Sanjeev Gupta

Pressure is mounting on Sanjeev Gupta’s global metals and mining empire as his major lender Greensill seeks space to restructure its finances.

Lex Greensill.

Pressure is mounting on Sanjeev Gupta’s global metals and mining empire as his major lender Greensill seeks space to restructure its finances amid concern talks between Mr Gupta and a new lender have fallen through.

The steel magnate, currently in Dubai, is highly exposed to Greensill Capital, one of the biggest financiers to Mr Gupta’s GFG Alliance which owns a swathe of Australian manufacturing, mining and energy assets including the Whyalla steelworks.

Credit Suisse suspended four funds worth $US10bn ($12.9bn) that rely on securities created by Greensill amid broader concerns about its exposure to Mr Gupta. That move sparked fears Greensill may be forced to file for insolvency, with the supply chain financing firm appointing Grant Thornton as it weighs its future and a potential restructuring.

Overnight, pressure mounted on Greensill Capital when a second fund manager, GAM Holding AG, froze an investment fund connected to the embattled finance firm.

Switzerland’s GAM said it had barred investors from trading in and out of the fund “as a result of recent market developments” and media coverage related to them. It plans to wind down the fund and return the money to investors.

Meanwhile talks between Mr Gupta and a second lender, Brookfield, are also under a cloud after reports emerged the Canadian investment giant had ended negotiations over a loan worth hundreds of millions of dollars.

Greensill, headed up by Bundaberg billionaire Lex Greensill, has sought safe harbour protections in Australia, bringing in external consultants to help directors engineer a turnaround of the business without risk they could be pursued for insolvent trading.

Mr Greensill may also be in talks with private-equity giant Apollo Global Management to sell its operating business for around $US100 million, according to Wall Street Journal reports.

“Greensill acknowledges the decision by Credit Suisse to temporarily gate Supply Chain Finance Funds dealing in Greensill-sourced assets,” a Greensill spokesman said.

“We remain in advanced talks with potential outside investors in our company and hope to be able to update further on that process imminently.”

Overnight, Mr Greensill told employees on a conference call that he is focusing on keeping the business operating and said there would be new owners by next week, according to the Wall Street Journal.

In a statement, a Greensill spokesperson confirmed the company was in talks to sell a large part of its business. “While the structure of the new business is still being determined, we expect the transaction will ensure the majority of Greensill clients will continue to be funded in the same way as they currently are.”

A spokesman for Mr Gupta’s GFG Alliance said the group “has adequate current funds and its plans to bring in fresh capital through refinancing are progressing well”.

“Our global efficiency drive means that our core businesses are operationally strong and improving. We are benefiting from a recovery in steel and aluminium markets, which means that most of our businesses are running at near full capacity to meet high demand and are generating positive cash flows.”

Greensill is heavily exposed to the global ambitions of Mr Gupta.

Mr Gupta, a former Sydney resident and owner of a $34m Potts Point mansion, made his name by hoovering up a string of struggling or closed plants and fashioning them into a $US15bn empire.

These include the former Arrium steelworks at Whyalla, its steel manufacturing and distribution businesses, a metallurgical coal mine in NSW and a manganese alloy plant in Tasmania bought recently from South32.

Mr Gupta has effectively split his Australian businesses in half. GFG’s Infrabuild arm includes its profitable steel distribution and recycling arms, along with profitable manufacturing and building supply businesses.

Last financial year Infrabuild booked an $11.6m net profit, on earnings before interest, tax, amortisation and depreciation of $217.7m – up from the previous financial year as business conditions improved following the initial impact of the pandemic.

It is that business Mr Gupta was seeking to borrow against in recent talks with Brookfield. While those businesses also have debts, they are of a more traditional nature, including $US325m of senior secured notes issued in 2019.

The group’s more difficult assets – including the Whyalla steelworks, the Tahmoor metallurgical coal mine in NSW and now the manganese alloy smelters in Tasmania – are part of Mr Gupta’s Liberty Primary Metals group, which booked a $124.6m net loss last financial year, according to accounts filed with ASIC.

GFG Alliance executive chairman Sanjeev Gupta

Liberty Primary Metals is far more exposed to Greensill, and could face a tough battle to refinance its debts if a less friendly lender took over Greensill’s loan book.

Financial accounts show Liberty Primary’s UK parent took on a $429.7m ‘receivables purchase agreement’ in July 2019 with an unnamed third party – believed to be Greensill – effectively borrowing against the future value of sales of the steel and other products coming from the manufacturing centres.

The accounts show that other parts of Mr Gupta’s group injected another $95.6m into Whyalla as a partial drawdown of a new $500m lending facility with a “related party”.

While the Liberty Primary Metals group would face a tough task to refinance its debts if Greensill collapsed, there is no indication its operations face near-term financial difficulties.

While Mr Greensill’s company boasts blue-chip companies such as AstraZeneca and Ford as clients – and high profile recruits such as former Australian Foreign Minister Julie Bishop and ex-British Prime Minister David Cameron – it has lost major Australian corporate clients over the last year.

Over the last 18 months Greensill has also been hit by the loss of other key clients for its supply chain financing services in Australia as major users – including Telstra, CIMIC and Rio Tinto – yielded to pressure from small business suppliers over Greensill-facilitated demands for discounts for prompt payment of invoices.

Telstra’s financial accounts show it had $593m worth of supply chain finance services on its books at June 30 2019. That was down to $98m by December 2020, with the company set to end the program completely by the middle of this year.

Similarly, CIMIC has cleared $707m worth of supply chain financing from its books over the last year. Its supply chain finance balance was $144m at December 2020 down from $851.3m from the year before.

Mr Gupta, a British industrialist, has struck deals at breakneck speed in Australia as he looks to expand his industrial footprint and build a big renewables business that can deliver green technology to his steel assets.

His GFG Alliance has been targeting the development of up to 3000 megawatts of renewables in addition to the planned 280MW Cultana solar farm in South Australia with the entire capacity forecast to be used for a new green hydrogen steel plant at Whyalla produced with clean energy.

A planned ASX float of its Infrabuild business, comprising a national distribution business and scrap metal recycling division, has been slated for later in 2021 but is now facing further delays or being frozen due to uncertainty over broader financing concerns for Mr Gupta’s empire.

Last year, Mr Gupta announced a turnaround plan to get costs at Whyalla under control, and told The Australian in December the plant was “virtually profitable on its own rights” already, amid a strong recovery in the value of its products that has continued into 2021.

But troubles with Mr Gupta’s most supporting lender undoubtedly cast a fresh shadow on promises the UK businessman has made to revitalise the South Australian manufacturing town since 2018, including spending $600m into upgrading the steelworks, bolstering its capacity and securing 2500 jobs, while feasibility studies for a massive new “green” steelworks producing up to 10 million tonnes per annum were worked through.

Plans to build a 280MW solar farm have also been announced, along with possible hydropower ambitions.