Greensill tightens its grip on Gupta shares amid jobs fallout fears

Court documents reveal the stark risk to Australian jobs if financier Greensill Capital is unable to work out a rescue plan.

Lex Greenshill of Greensill Capital. Picture: Annabel Moeller

Greensill Capital took security over Sanjeev Gupta’s shares in his most profitable Australian businesses on the same day the troubled financial services group warned a NSW court its collapse could send a host of Australian and international borrowers and clients to the wall.

The security was lodged with Australian and UK regulators on Monday as Bundaberg-born Lex Greensill scrambled to save his financial services unicorn, and as lawyers for Greensill warned the NSW Supreme Court that “over 7000” Australian jobs were at risk if it did not intervene to force insurers to extend coverage amid a crisis engulfing the company.

Lawyers for the financier told the NSW Supreme Court the loss of $US4.6bn ($5.9bn) worth of credit insurance, which expired on Monday, could cause a wave of insolvencies that could put many Greensill clients under, risking more than 50,000 jobs across the world including 7000 in Australia.

“If the policies are not renewed, Greensill Bank will be unable to provide further funding for working capital of Greensill’s clients. In the absence of that funding, some of Greensill’s clients are likely to become insolvent, defaulting on their existing facilities,” court documents say.

“That, in turn, may trigger further adverse consequences on third parties, including the employees of Greensill’s clients. Greensill estimates that over 50,000 jobs including over 7,000 in Australia may be at risk. The working capital facilities involved total some $US4.6 billion to approximately 40 different Greensill clients.”

At the same time Mr Greensill was moving to protect loans made to Mr Gupta’s GFG Alliance, amid a crisis sparked by concerns among regulators and financial backers that Greensill Capital is too heavily exposed to Mr Gutpa’s global network of mining and manufacturing centres. Most were bought on the cheap from previous owners amid promises to turn the ailing operations around through new investment.

On Monday Greensill took security over Mr Gupta’s shares in Liberty Holdings Australia and Liberty Infrabuild – which own the most profitable sections of GFG’s Australian businesses.

They include money-making steel distribution and recycling centres that posted earnings of more than $200m last financial year.

That move would allow the troubled financial services firm to seize control of the shares if other parts of Mr Gupta’s empire default on loans made by Greensill.

Similar security agreements were filed with UK regulators in mid-February, seemingly covering physical assets owned by the two Australian companies.

Infrabuild and Liberty Australia Holdings are not believed to owe any money directly to Greensill.

GFG’s more difficult Australian 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, and have big debts to Greensill Capital.

Financial accounts show the UK parent of that group 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 dates of that receivables purchase agreement match up with similar deals between GFG mentioned in the document filed on Monday, giving Greensill security over the shares

While it is not clear how much Mr Gupta’s company owes to Greensill Capital around the world, estimates from 2019 suggest up to two thirds of its loan book was linked to GFG entities.

Lending from Greensill has provided a proportion of the additional cash to fund turnaround strategies within Mr Gupta’s empire. Debts associated with GFG – as well as those from the rest of Greensill’s supply chain financing business – have been packaged up by Credit Suisse and GAM Holdings into complex financial instruments and sold to institutional investors.

But Credit Suisse pulled the plug on $US10bn worth of Greensill-linked investment funds this week, amid concerns they are too reliant on GFG lending, and GAM has also frozen its sole remaining fund.

Greensill declined to comment on the security agreement on Wednesday, saying it did not talk about its business relationship with its clients. GFG also declined to comment.

While 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, and GFG said on Wednesday its Whyalla steelworks were “back in the black” after a cost-cutting program in 2020 and rising demand for steel and iron ore produced at the facility.

But the timing of the security documents suggest it could also be a factor in the failure of Mr Gupta’s talks for new debt facilities with Brookfield, and potentially cast a shadow over plans to float the business.

On Wednesday the South Australian government said it had rejected a GFG request to boost a proposed $50m taxpayer injection for its Whyalla steelworks redevelopment, the state’s treasurer Rob Lucas said.

The former Labor government committed a $50m package to help boost the revitalisation of Whyalla, previously owned by Arrium, in the hope the federal government would tip in an extra $100m on top of the state payment.

Companies connected with Mr Gupta, presumed to be GFG, were unsuccessful in approaching the state’s Liberal government about a bigger funding package.

“It‘s also fair to say at various stages there have been discussions from the company’s interests about whether or not there was interest from the government in relation to a more significant support package,” Mr Lucas told state parliament on Wednesday.

“I and others on behalf of the government made it quite clear that the former Labor government made a commitment to a $50m support package. That was the extent of the government’s potential involvement or investment in the future of the steelworks.

“And if the company was looking for further taxpayer support, it should look to either the federal government or alternative sources of funding.”

The state government said it was closely watching issues with Greensill Capital and its potential impact on Whyalla.

“I have been following the connections between Greensill, GFG and related financing and related companies for many, many months,” Mr Lucas said.

It remains open to honouring the $50m payment but only if it were used to boost the future of Whyalla rather than paying off debts or unpaid bills.

“The incoming government indicated we were prepared to honour the commitments made by the former Labor government in relation to this. The government have not signed off on an agreement in relation to that $50m support package,” Mr Lucas said.

“Broadly the government has said we’re not interested in providing up to $50m of taxpayer money to fund the repayment of any debts or bills the company might have.

If the government was going to follow it through, there needed to be tangible investments in the future of the steelworks at Whyalla that we could see and it’s quite clear that what’s the taxpayers of SA were investing in.”