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When the Office of Serious Fraud confirmed that it was investigating Sanjeev Gupta’s GFG alliance on Friday, the future rescuer of the metals group appeared to be leaving.
White Oak Global Advisors, which had agreed terms on two emergency funding agreements with Australian and British steelmakers Gupta, said on Friday that it was “not in a position to continue discussions with any company under investigation by the Office of Gupta.” Serious money laundering fraud “.
An hour later, he issued a seemingly contradictory statement regarding GFG’s Australian companies: “White Oak continues its efforts to refinance the country’s Liberty Primary Metals debt subject to financial due diligence and acceptable government.”
White Oak had been surprisingly willing to lend to GFG despite reports of alleged fraud. GFG has denied the wrongdoing and pledged to “fully cooperate” with the SFO probe.
It now appears that, despite its initial statement, White Oak may be willing to fund a company that is the subject of an SFO investigation.
The reason may be that the San Francisco-based private lender is not a fresh “white gentleman,” but a company trying to manage existing exposure to the metals group.
White Oak has already had significant exposure to GFG, according to documents seen by the Financial Times and people familiar with the matter.
Last year, as Gupta’s main sponsor, Greensill Capital, came under pressure to reduce its exposure to industrial companies, White Oak stepped in to help, according to four people with knowledge of the issue.
In the spring of 2020, it began buying the steel tycoon’s debt from the supply chain financing group, increasing activity over the summer, two of the people said. It was structured through complicated agreements that provided an option for Greensill to buy it back later, according to people.
White Oak has also provided funding directly to Gupta’s Liberty group.
“[It is] known for transactions outside the wall and sitting in the tricky part of the capital structure, “according to one person who has worked with White Oak. Another described it as” a rather aggressive fund, “saying the lender should been looking for “very, very good returns.”
A White Oak spokesman said he did not “recognize or agree with this characterization” of the company. “For over a decade we have been a trusted partner for thousands of SMEs around the world who have helped grow their businesses through financing,” he said.
The company has played an important role in a fast-growing corner of financial markets in which private groups, less regulated than banks, grant commercial loans that banks would normally consider too risky, often at attractive interest rates.
He has extracted investments from pension funds from groups as diverse as professors in Lancashire, nurses in New York and Boeing workers as they seek access to the highest returns that the riskiest loans can offer.
And it has established itself as a provider of British taxpayer-contributed loans to small businesses under a Covid-19 emergency plan, handing out £ 250m to about 800 companies, according to its chief executive Andre Hakkak. The loans were made by its British shipowner, a 35-year-old lender based near Chester, known as LDF Group before White Oak bought it in 2018.
“Some people have referred to us as white knights,” Hakkak said in a video interview with ABL Advisor last month. “If you talk to some of our borrowers, they will be very happy that we come in quickly and take out the credit and try to make them survive and thrive in a difficult environment.”
However, he said, this business was risky: “What risk does a manager want to take to get 10% returns? That’s the real question.”
White Oak had been willing to agree terms to fund parts of Gupta’s imperial industrial empire – an estimated $ 430 million (£ 236 million) deal to refinance its Australian steelmaking and a £ 200 million lifeline. pound sterling for its British steel plants – at a time when others do not.
White Oak’s statement that it would walk away from the talks created uncertainty for thousands of workers at GFG’s steel mills. The company’s plants in Yorkshire, which employ about 1,800 people, have been particularly pressured by the collapse of Greensill and declining demand from aerospace customers due to the pandemic.
The two main plants in Rotherham and Stocksbridge have some of the largest manufacturing companies in Europe among their customers, including Rolls-Royce, JCB and Saffron. Plant managers have been able to continue to operate intermittently despite the desperate need for working capital thanks to the achievement of specific customer commitments for their steel.
White Oak’s relationship with GFG dates back at least to February 2019, when the U.S. group provided a $ 200 million loan to Liberty’s Australian business. Greensill put $ 545 million aside.
It worked well for White Oak. GFG raised a high-yield bond in the fall of that year to repay the debt, repaying the loan with a yield of 10 percent, said a person close to the matter.
White Oak later intervened to buy Liberty Commodities’ debt to Greensill, for a total of more than $ 200 million, according to one of the people with knowledge of the matter.
Greensill and GFG Group declined to comment.
David Cameron, the former prime minister who worked as Greensill’s adviser, told a select committee on Thursday that he was “asking a lot of questions” about Greensill’s exposure to GFG. “The security I always had was that there was a plan to deal with this concentration,” he said.
Earlier in March this year, White Oak had about $ 300 million on display at Gupta’s Liberty goods, which were due to mature on May 20, according to a document seen by FT.
White Oak has also agreed to lend money to Westford Trade Services, a commercial financing company that has done numerous businesses with Gupta’s Liberty Commodities.
It provided Westford in May 2020 with a “no-obligation commercial financing facility,” usually a short-term financing agreement, according to documents presented to Companies House showing that White Oak has a charge over Westford.
Westford Limited, a Hong Kong-registered company that is part of the same group, is listed as a user of Greensill’s supply chain financing products that were sold through Credit Suisse funds that the bank suspended in March. according to a bank report. . Westford did not respond to requests for comment.
White Oak had made a foray into crisis-stricken steel companies before lending to the Gupta empire. It provided a £ 90 million line of financing to British Steel in July 2018, less than a year before it collapsed under former owner Greybull Capital.
Hakkak at the time said the “partnership” represented “White Oak’s continued commitment and ambition for the UK and the wider EU market”.
As British Steel moved on the brink of insolvency, White Oak held talks with Liberty about a possible takeover bid for the company, according to people familiar with the matter.
While this did not happen, the lender managed to get its money back when the firm went into liquidation, despite being below some secured lenders for high charges in the amortization queue.
“They were very commercial and hard-mouthed,” said one person familiar with their role at the time. “They would have charged their pound of Gupta meat.”
Additional reports by Oliver Barnes
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