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Greensill Bank used state-backed loans from three European governments to reduce its exposure to Sanjeev Gupta-owned companies, highlighting the scope of taxpayers ’potential exposure to the metal tycoon’s business empire conflict.
The scheme, described in documents viewed by the Financial Times, provides information on the tactics Greensill Bank employed in trying to pacify regulators concerned about the risk of lending to Gupta’s GFG Alliance.
Greensill Capital supply chain financing group fell to the administration in March, causing a international political and financial scandal. Currently, the lender’s links with Gupta companies are the focus of a criminal investigation by the UK’s serious fraud office in GFG.
Last year, Bremen-based banking subsidiary Greensill faced an increase German financial watchdog pressure BaFin to reduce its extensive lending to GFG.
In response, Greensill Bank devised a plan to use government guarantees granted under Covid’s financial measures to offset its credit risk, according to a report by the bank’s administrator.
In late July 2020, Greensill Bank wrote to BaFin to outline a plan under which government-backed loans to three GFG companies in France, Italy and the Czech Republic would be used as a cash guarantee. against the bank’s existing loans to GFG, according to the report of the administrator Michael Frege of the German law firm CMS Hasche Sigle.
Greensill Bank’s credit risk for GFG would be discharged to governments, the report explains. At the time of Greensill’s collapse, GFG companies owed their Bremen-based bank more than 2.8 million euros, according to the administrator’s report.
GFG companies in France, Italy and the Czech Republic obtained four loans worth 190 million euros combined, and the respective governments provided guarantees of 80 or 90% of the value of the loans.
According to the report, lawyers working for the administrator are examining the validity of the loan guarantees.
The loans were granted in addition to taxpayer-backed loans worth £ 400 million extended to eight Gupta-linked companies under Britain’s Coronavirus disruption loan program. FT has previously reported that Gupta restructured its business last year to maximize the amount of loans backed by UK taxpayers could get out of the scheme.
In France, the state-owned investment bank BPI supported two loans, worth 17 and 10 million euros, which Greensill Bank granted to Alvance Aluminum Group. Liberty Magona Srl, which is part of GFG’s steel operations, obtained a loan of 86 million euros, with the support of the Italian export credit agency Sace. Meanwhile, in the Czech Republic, GFG’s steel operations, Liberty Ostrava, received a loan of 76 million euros with the support of the country’s export credit agency, Egap.
The entire group was shaken by the collapse of Greensill, their largest lender. GFG is trying to refinance and repay creditors.
Greensill Bank management is under control criminal investigation on suspicion of balance sheet manipulation, following a complaint from BaFin, which in early March ordered a moratorium on the bank’s business. A forensic audit, conducted by KPMG, found that Greensill Bank “was unable to provide evidence of the existence of accounts receivable on its balance sheet that it had purchased from the GFG Alliance.”
GFG and Greensill declined to comment.
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