Bloomberg

As Sanjeev Gupta went from trader to tycoon, several banks backed down

(Bloomberg) – British industrialist Sanjeev Gupta’s businesses appeared to be thriving until its main lender, Greensill Capital, blew up last month. But long before the collapse of Greensill, several banks had shut down the commodities trading business of Gupta’s Liberty House Group. Four banks ceased working with Gupta’s commodity trading business from 2016, after worrying about what they perceived to be problems with the bills of lading. – shipping receipts that give its holder the right to take possession of a cargo – or other documents provided by Liberty, according to interviews with 18 people directly involved in the trades, as well as internal communications seen by Bloomberg News. Banks include Sberbank PJSC, Macquarie Group Ltd., Commonwealth Bank of Australia, and ICBC Standard Bank. Goldman Sachs Group Inc. also stopped working with Gupta’s companies around this time, and in 2018 Sberbank sent a team to scour the brightly colored containers stacked in the Port of Rotterdam, looking for those filled with nickel that the bank had financed in the name of Liberty. Yet whenever investigators located one of the containers, they found it had already been emptied, according to two people involved in the case. After checking about 10 of them, they gave up, the people said. Sberbank confronted Gupta in a meeting a few weeks later. He promised his company would pay back the roughly $ 100 million it owed, the people said. “At one point, some discrepancies were spotted in the documentation and logistics data, which forced Sberbank to halt all operations with the company,” the bank said in an email. declaration. “The matter was settled in a preliminary format. Thanks to the existing control systems, we did not suffer any financial loss as a result of these transactions and were able to unwind all transactions in the spring of 2019. ”GFG Alliance, which is made up of companies controlled by Gupta and its family, including Liberty , said in an emailed statement from a spokesperson that she refutes any suggestions of wrongdoing. “An internal investigation was carried out in 2019 by external legal advisers to Liberty Commodities Limited (LCL) following investigations into alleged rumors of double engagement,” GFG Alliance said in the statement. “The investigation found no evidence to support the rumors, and LCL was never the subject of any further complaints or proceedings.” Double pledging is the practice of irregular fundraising more than once using the same collateral. As several banks abandoned Gupta’s commodities trading unit, GFG Alliance came to rely more on Greensill Capital for lending – ultimately racking up nearly $ 5 billion in debt with the finance company. Lex Greensill’s business by March 2021, according to a presentation seen by Bloomberg News. Gupta’s commodity trading business alone has a debt of $ 1.04 billion, of which $ 846 million is owed to Greensill, according to the presentation. “LCL maintains ongoing banking relationships with separate financial institutions,” GFG Alliance said in the release. “His reliance on Greensill was a natural consequence of the competitive nature of the trade finance market, which has been extremely difficult for everyone except the largest commodity traders in recent years.” Now, with Greensill in insolvency and its German subsidiary facing a criminal complaint after the regulator said it found irregularities in the way the banking unit accounted for assets linked to GFG Alliance, Gupta is trying to find a new funding. But it was hard. After Gupta had sought out potential lenders for weeks, Credit Suisse Group AG – which became a major lender to Gupta’s businesses by purchasing Greensill-conditioned debt – decided last month to push Liberty Commodities Ltd. to insolvency. Gupta said in interviews on BBC Radio 4 and Sky News on April 1 that the action made no sense and that he would plead it if necessary. their journey from origin to destination. From the perspective of banks, this type of financing is generally considered low risk. If the merchant runs into financial difficulties, the bank can seize their collateral – the cargo – and easily get their money back. This is true as long as the shipping documents used, such as a bill of lading, are correct. ICBC Standard Bank stopped funding Liberty’s commodities trading unit in early 2016, after discovering that it had presented to the bank what appeared to be duplicate bills of lading. , according to two people with direct knowledge of the subject. The Commonwealth Bank of Australia terminated loans to Gupta’s business activity the same year after the bank financed a shipment of metal for Liberty, only to be presented with what appeared to be the same bill of lading shortly thereafter by a Another trader looking for a Next, in late 2016, Goldman Sachs, which had extended an approximately $ 20 million line of credit to Liberty to fund its nickel business, stopped doing business with Gupta’s trading company. after being alerted to suspected paperwork issues by a contact in the warehousing industry, according to three people familiar with the matter. Spokesmen for Goldman Sachs, Commonwealth Bank of Australia and ICBC Standard Bank all declined to comment. at LCL, “GFG Alliance said in the release, referring to Liberty Commodities Ltd.” On the contrary, they have received substantial trade returns. By 2016, Liberty h ad has already grown into one of the world’s largest nickel traders, according to an interview with Gupta in Metal Bulletin. Still, Liberty’s nickel containers would sometimes take an unusually long time to travel between Europe and Asia – instead of the normal shipping time of around a month, the trip would take several months, stopping at ports. along the way for weeks at a time. Metal trader Red Kite Capital Management, who also severed ties with Liberty, did so because he had become “uncomfortable” with certain trades, said Michael Farmer, the founder of the company who is also a member of the United Kingdom. s House of Lords. “It was difficult to determine the commercial direction of some shipments, which led us to be cautious and halt these exchanges,” said Farmer, one of the world’s best-known metal traders. “We had no evidence of any wrongdoing.” Savior of SteelGupta was born in Punjab, India, the son of a bicycle maker. He moved to the UK as a teenager to attend boarding school and set up Liberty House, his commodities trading company, in 1992, while still an undergraduate student at Trinity College, Cambridge. It first made headlines in Britain in 2013 when it bought a struggling steel mill in Newport, South Wales, and restarted production at a time when many other steel mills were closed. He then bought a series of other struggling steel plants, earning him the nickname “Savior of Steel.” Gupta’s GFG Alliance is not a consolidated group, but a loose conglomerate of over 200 different entities. According to six former employees, the common thread running through both sides of his business was a chronic shortage of cash and intense pressure to find new ways to generate funding. quick succession, including unloved aluminum and steel factories in Yorkshire, England, northern France and South Australia, then borrowings from the company’s own inventory, equipment and customer invoices. company, often with Greensill. Used as an alloying element in the production of stainless steel, nickel is among the metals available on the London Metal Exchange, meaning that its price can easily be hedged and banks are generally willing to lend against it. ; and nickel is expensive, which means that a relatively small amount of space in a ship can hold a valuable cache of metal. Revenue rose to $ 8.41 billion in the 15 months to March 2019, from $ 1.67 billion in 2012, according to accounts from Liberty Commodities Group Pte, a Singapore-based holding company for operations. negotiation. around four years ago, according to four people with first-hand knowledge of the events as well as written communications seen by Bloomberg News.In one case, the bank realized of the nickel it was supposed to have received in Antwerp, according to shipping documents, was not at the port, according to two people. Liberty eventually delivered the nickel to Macquarie, but in a different port and about two weeks later than stated in the paperwork – it wasn’t the only time the Macquarie team had discovered anomalies in the paperwork. of Liberty, the people said. The London offices, the bank’s executives spoke to Gupta and his senior lieutenants about the inner workings of the commodities trade, three people said. Macquarie remained dissatisfied with the explanations, and by mid-2017 the bank had made a decision to stop all funding for Liberty, People said. A spokesperson for Macquarie declined to comment on the matter. companies turned to Sberbank. When that link 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 news source most reliable business. © 2021 Bloomberg LP