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Bloomberg

As Sandjeev Gupta rose from merchant to tycoon, several banks backed down

(Bloomberg) – The companies of the British industrialist Sanjaev Gupta prospered until his main creditor, Greensill Capital, exploded last month. But long before the collapse of Greensill, several banks had cut off Gupta’s Liberty House Group commodity trading business. Four banks have stopped working with Gupta̵

7;s commodities trading business, starting in 2016, after worrying about what they perceive as problems in waybills – shipping receipts that entitle the holder to take possession of cargo – or other documents provided by Liberty, according to interviews with 18 people directly involved in the deals, as well as internal communications seen by Bloomberg News. Banks include Sberbank PJSC, Macquarie Group Ltd., the Commonwealth Bank of Australia and ICBC Standard Bank. At the time, Goldman Sachs Group Inc. also stopped working with Gupta companies. In 2018, Sberbank sent a team to search the brightly colored containers lined up in the port of Rotterdam, looking for nickel-filled ones, which the bank had financed on behalf of Svoboda. However, each time investigators located one of the containers, they found that it had already been emptied, according to two people involved in the case. After checking about 10 of them, they gave up, people said. Sberbank faced Gupta in a meeting weeks later. He promised that his company would pay about $ 100 million due, people said. “At some point, some inconsistencies were noticed in the documentation and logistical data, which led Sberbank to terminate all operations with the company,” the bank said in an e-mail. statement. “The issue was settled in a pre-trial format. Thanks to the existing control systems, we did not incur financial losses as a result of these operations and were able to deploy all transactions in the spring of 2019. ” The GFG Alliance, which is made up of companies controlled by Gupta and his family, including Liberty, said in an email sent by a spokesman that it denied any allegations of wrongdoing. “An internal investigation was conducted in 2019 by the external legal advisers of Liberty Commodities Limited (LCL) following investigations into alleged rumors of a double promise,” the GFG Alliance said in a statement. “The investigation found no evidence to support the rumors, nor has LCL ever been the subject of additional complaints or proceedings.” Double betting is the practice of improper fundraising more than once using the same collateral. As several banks dropped out of Gupta’s commodities trading unit, the GFG Alliance began to rely more on Greensill Capital for loans – eventually accumulating nearly $ 5 billion in debt to Lex Greensill’s commercial finance company by March 2021, according to a presentation , seen by Bloomberg News. Gupta’s commodities trading business alone has $ 1.04 billion in debt, of which $ 846 million is owed to Greensill, according to the presentation. “LCL maintains ongoing banking relationships with individual financial institutions,” the GFG Alliance said in a statement. “His reliance on Greensill was a natural consequence of the competitive nature of the commercial finance market, which has been extremely challenging for all but the largest commodity traders in recent years.” Now that Greensill is bankrupt and its German subsidiary company is under criminal complaint after the regulator said it found irregularities in the way the banking unit registered assets related to the GFG Alliance, Gupta is trying to find new funding. But it was difficult. After searching for potential financial intermediaries for weeks, Credit Suisse Group AG – which has become a major lender to Gupta’s companies by buying debt packaged by Greensill – went last month to push Liberty Commodities Ltd. in bankruptcy. Gupta said in interviews with BBC Radio 4 and Sky News on April 1 that the action made no sense and that he would prosecute it if necessary. Rental Risks Traders in the world of goods have long relied on banks to help finance the flow of goods their journey from origin to destination. From the point of view of banks, this type of financing is usually considered low-risk. If the merchant encounters financial difficulties, the bank can seize its collateral – the cargo – and easily get his money back. This applies as long as the shipping documents used, such as a bill of lading, are accurate. ICBC Standard Bank stopped funding Liberty’s commodity trading unit until early 2016, after discovering that it had presented duplicate bills of lading to the bank, according to two people with direct knowledge of the matter. The Commonwealth Bank of Australia withdrew loans for Gupta’s commercial business the same year after the bank financed a metal cargo for Liberty, only to be presented with the same bill of lading shortly after by another trader seeking then in late 2016 Mr. Goldman Sachs, which provided Liberty with a $ 20 million credit line to finance the nickel trade, stopped dealing with Gupta’s trading company after being alerted to alleged problems with contact documents in the warehousing industry, according to three familiar. Spokesmen for Goldman Sachs, the Commonwealth Bank of Australia and ICBC Standard Bank declined to comment. “No financial institution has been left out of pocket as a result of loans to LCL,” the GFG Alliance said in a statement, citing Liberty Commodities Ltd. “On the contrary, they have received significant commercial returns. “By 2016, Liberty h ad had already become one of the largest nickel traders in the world, according to an interview with Gupta in Metal Bulletin. Still, Liberty’s nickel containers will sometimes take an unusually long time to travel between Europe and Asia – instead of the normal sailing time of about a month, the trip will take several months, stopping at ports on the way for weeks. said six people. Metal trader Red Kite Capital Management, which also severed ties with Liberty, did so because it became “uncomfortable” in some of the deals, said Michael Farmer, the company’s founder, who is also a member of the United Kingdom. s House of Lords. “It was difficult to develop the commercial meaning of some of the shipments, which led to our decision to be cautious and stop such transactions,” said Farmer, one of the world’s most famous metal traders. “We had no evidence of any errors.” SteelGupta’s rescuer was born in Punjab, India, the son of a bicycle manufacturer. He moved to the United Kingdom as a teenager to attend boarding school and set up Liberty House, his commodity trading business, in 1992 while still a student at Trinity College, Cambridge. It first hit the UK headlines in 2013 when it bought the troubled steel plant in Newport, South Wales and restarted production at a time when many other steel mills were closing. He continued to buy a series of other troubled steel mills, earning him the nickname “the savior of steel.” Gupta’s GFG Alliance is not a consolidated group, but a loose conglomerate of more than 200 different entities. According to six former employees, the common thread that runs through both sides of his business is the chronic shortage of money and strong pressure to find new ways to generate funding. On the industrial side of the business, this meant buying one asset after another in rapid succession, including unloved aluminum and steel plants in Yorkshire, England, Northern France and South Australia, then borrowing against the customers’ own inventories, equipment and invoices. business, often from Greensill. On the commercial side of the business, this often meant nickel. Used as an alloying element in the production of stainless steel, nickel is among the metals traded on the London Metal Exchange, which means that its price can be easily hedged and that banks are usually willing to lend against it; and nickel is expensive, which means that relatively little space in the ship can hold valuable metal cache. The commodity trading business is growing rapidly. Revenue rose to $ 8.41 billion in the 15 months to March 2019 from $ 1.67 billion in 2012, according to the accounts of Liberty Commodities Group Pte, a trading holding company in Singapore. about four years ago, according to four people with direct knowledge of the events, as well as written reports seen by Bloomberg News. In one case, the bank realized that the nickel it was supposed to receive in Antwerp, according to transport documents, was not at the port, according to two people. Liberty eventually delivered the nickel to Macquarie, but to a different port and about two weeks later than stated in the documents. This was not the only time the Macquarie team found discrepancies in Liberty’s documents, people said. At a meeting at Macquarie’s London offices, bank executives grilled Gupta and his senior lieutenants for the internal workings of the commodities trading business, three of the people said. Macquarie remains unhappy with the explanations and by mid-2017, the bank has decided to suspend all funding for Liberty. A Macquarie spokesman declined to comment. After the banking relationship ended fiercely, Gupta companies turned to Sberbank. When this relationship also deteriorated, they became even more dependent on Greensill. For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP


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