Greensill Bank has used state-backed loans from three European governments to reduce its exposure to companies owned by Sanjeev Gupta, highlighting the extent of taxpayers ’potential exposure to the tycoon’s troubled business empire. metals.
The scheme, described in documents seen by the Financial Times, gives an insight into the tactics Greensill Bank has used while trying to pacify regulators concerned about the risk of lending to Gupta’s GFG Alliance.
The financial group of the Greensill Capital supply chain fell into administration in March, triggering a international political and financial scandal. The lender’s ties with Gupta’s companies are currently the focus of a criminal investigation from the UK’s Serious Fraud Office in GFG.
Last year, the Bremen-based Greensill banking subsidiary faced growth pressure from the German financial watchdog BaFin to restrict their extensive lending to GFG.
In response, Greensill Bank has devised a plan to use government guarantees granted under Covid economic measures to offset its credit risk, according to a report by the bank’s administrator.
In late July 2020 Greensill Bank wrote to BaFin outlining a plan under which government-backed loans extended to three GFG companies from France, Italy and the Czech Republic would be used as a cash guarantee against existing loans from the bank to GFG, according to the report by the administrator Michael Frege of the German law firm CMS Hasche Sigle.
Greensill Bank’s credit risk for GFG would be offloaded to governments, the report explains. At the time of Greensill’s collapse, GFG companies owed their Bremen bank more than 2.8 billion euros, according to the administrator’s report.
GFG companies in France, Italy and the Czech Republic have obtained four loans for a combined value of 190 million euros, with the respective governments providing guarantees of 80 or 90 per cent of the value of the loans.
Lawyers working for the administrator are examining the validity of the loan guarantees, according to the report.
The loans were granted in addition to the loans backed by taxpayers for a value of £ 400 million extended to eight companies linked to Gupta under the Loan Scheme for the Interruption of Large Coronavirus Companies in Great Britain. The FT has already announced that Gupta has restructured its businesses last year to maximize the amount of loans supported by British taxpayers could get out of the scheme.
In France, the state-owned investment bank BPI supported two loans, of 17 and 10 million euros, which Greensill Bank made to Alvance Aluminum Group. Liberty Magona Srl, which is part of GFG’s steel operations, has obtained a loan of 86 million euros, supported by the Italian export credit agency Sace. Meanwhile in the Czech Republic, GFG Liberty Ostrava’s steel operations have received a loan of 76 million euros supported by the export credit agency Egap.
The entire group was shaken by the collapse of Greensill, their biggest provider. GFG is now trying to refinance and repay the creditors.
The management of Greensill Bank is down criminal investigation on suspicion of manipulation of the balance sheet, following a complaint by BaFin, which in early March ordered a moratorium on the affairs of the bank. A forensic audit, conducted by KPMG found that Greensill Bank “was unable to provide evidence of the existence of credits in its balance sheet that it had acquired from the GFG Alliance.”
GFG and Greensill declined to comment.