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RIO - Rio Tinto News Story

6135p -169.0  -2.7%

Last Trade - 14/05/21

Sector
Basic Materials
Size
Large Cap
Market Cap £99.32bn
Enterprise Value £103.19bn
Revenue £31.65bn
Position in Universe 13th / 1826

Dunkirk smelter deal provides a window into GFG's complex web of financing

Thu 1st April, 2021 7:00am
By Pratima Desai
    LONDON, April 1 (Reuters) - Sanjeev Gupta's $500 million
purchase of Europe’s largest aluminium smelter from Rio Tinto in
2018 was the steel tycoon’s first big industrial deal financed
through traditional bank debt.
    Gupta's GFG Alliance, a sprawling network of hundreds of
privately-held companies with interests spanning steel,
aluminium, mining, financial services and real estate, publicly
announced the five-year term loan with a syndicate of banks.
    Behind the scenes, however, GFG had tapped British finance
firm Greensill and U.S. asset manager BlackRock for additional
funding via a complex chain of holding companies, according to
two sources with direct knowledge and documents seen by Reuters.
    The extra borrowing enabled Gupta to minimise the amount of
cash that he had tied up in the purchase of the Dunkirk
aluminium smelter in France, the two sources said. They said the
original syndicate of banks and commodity trader Trafigura were
unaware of the additional funding, which Gupta used to cash in
some of the equity he had pledged for the purchase of the
smelter.     
    A spokesman for GFG Alliance declined to comment on its
financial arrangements. Trafigura and Greensill's administrators
declined to comment.
    GFG Alliance's complex corporate structures and financing
arrangements are proving problematic as Gupta seeks new sources
of funding in the wake of Greensill's insolvency last month.
    Gupta is talking to the government in Britain, where he
employs around 3,000 people, about receiving financial support
from the state for his businesses there but some officials say
they are wary.
    "We are custodians of taxpayers' money and there were
concerns about the very opaque structure of the GFG group,”
Britain's Business Secretary Kwasi Kwarteng said on Tuesday.
    "We can’t be giving taxpayers’ money, essentially putting it
into a black box where we don’t know what the money will be used
for."  urn:newsml:reuters.com:*:nL8N2LS2GW
    The GFG Alliance spokesman declined to comment on Kwarteng's
remarks or on the discussions with government.
    GFG has said previously that it is trying to negotiate a
standstill agreement with Greensill's administrators, which
would mean it could pause its debt payments to Greensill, and
refinance its businesses. 
    The supply chain finance firm was a major source of funding
for Gupta as he bought up troubled metals manufacturing
facilities, creating a conglomerate with more than 35,000
employees across 30 countries. Greensill repackaged loans it
made to GFG Alliance into bonds that could be sold to investors.
    The funding that GFG Alliance got from Greensill for the
French smelter was in the form of a $77.5 million promissory
note while BlackRock lent $115 million, according to the two
sources and GFG presentations seen by Reuters.
    One presentation of the smelter's funding structure lists 9
corporate entities across multiple jurisdictions including
Luxembourg, France and the Netherlands, with a straight line up
to Sanjeev Gupta.
    In January 2019, when the BlackRock loan was made available,
Gupta used the fresh funding to replace some of the equity he
had pledged for the Dunkirk smelter, enabling him to access at
least $50 million in cash, two sources with direct knowledge
said.
    That equity was part of the original bank syndicate loan
agreement. GFG Alliance was to pay a third of the purchase price
for the smelter and the banks, along with Trafigura, lent $350
million, according to a presentation seen by Reuters and the two
sources.
    The lenders which included Natixis and BNP Paribas were not
informed about the additional loans from Greensill and
BlackRock, the sources said.
    Reuters could not determine if the syndicated loan agreement
required GFG Alliance to request permission from the banks and
Trafigura before raising additional funding for the smelter.
    Natixis and BNP Paribas declined to comment about their loan
agreement with GFG Alliance.
    BlackRock’s $115 million loan was not repaid when it matured
in January of this year and has been extended by two years
according to a third source.
    The loan plus interest amount to $131 million, according to
a March 2021 document showing GFG's debts and the valuation of
its businesses. 

 (Reporting by Pratima Desai; editing by Veronica Brown and
Carmel Crimmins)
 ((pratima.desai@thomsonreuters.com; +44 207 513 5681;))
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