Sanjeev Gupta’s GFG Alliance prepares for Greensill Capital insolvency
Sanjeev Gupta has told his top Australian executives to put safeguards in place, as its main banker will likely file for insolvency.
Sanjeev Gupta has told his top Australian executives its main banker Greensill Capital will likely file for insolvency, triggering GFG Alliance to make repayments on Greensill loans to an administrator rather than direct to its financier.
The embattled industrialist, owner of South Australia’s Whyalla steelworks, said he is preparing for the insolvency action to change the relationship between the high flying duo, with GFG seeking to protect its position by making payments in an administrator-type relationship.
While Mr Gupta told senior management it was a routine safeguard for the business given the swift unravelling of its main funding line, the move underscores an accelerating fallout between the two industry titans as they battle to keep their empires afloat.
GFG failed to make one payment to Greensill on Monday, according to a Financial Times report.
Sources close to Mr Gupta said that may reflect a move by GFG to withhold regular payments given increasing uncertainty whether Greensill will trade its way through the current crisis.
Mr Gupta told executives on a Wednesday phone hook-up that he was in talks with alternate banks amid mounting pressure to find a stop-gap solution to refinance his large debt pile with Greensill.
Although he stressed a business as usual message for GFG in Australia, the near-term challenges for Mr Gupta are mounting given his risk profile has partly proved the undoing of Greensill itself.
Greensill’s main insurer cut a $4.6bn policy this week as it grew uncomfortable over exposure, triggering Credit Suisse to suspend $US10bn of funds invested in loans arranged by the financier.
Lawyers in Sydney for Mr Greensill pleaded to force the extension of the insurance policies, arguing their loss of the insurance policies would trigger a chain of events that could lead to the insolvency of its clients. That included a “major global resources group with significant operations based in Australia” understood to be Mr Gupta’s GFG Alliance.
Despite the dire warnings of the loss of the insurance policies, on Wednesday Greensill Capital withdrew its legal bid to force an extension of the policies, raising questions about the group’s next move.
While Greensill remains in talks to spin off some of its business at a huge discount to private equity giant Apollo, any deal would not include Mr Gupta’s sprawling empire. That’s left the industrialist scrambling to find a new provider of short term financing and triggered a change of approach for how it handles regular loan payments to Greensill.
One further twist arrived from Greensill after it applied an extra financial squeeze on Mr Gupta this week, taking security over shares in his most profitable Australian businesses, Liberty Holdings Australia and Liberty Infrabuild – which own the most profitable sections of GFG Alliance’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.