Sanjeev Gupta’s GFG transferred funds from steel mills in an attempt to settle debt
Sanjeev Gupta’s GFG Alliance transferred cash from an Eastern European steel company in a bid to settle a debt with buyout group American Industrial Partners, according to documents that shed light on a legal battle triggered after the private equity firm refused to accept the funds on the grounds that it could constitute a criminal offence.
The foiled payment in July last year was a last-ditch attempt by industrialist Gupta to retain control of Europe’s largest aluminum smelter in Dunkirk, of which New York-based AIP had become a creditor within months earlier before finally taking control of the facility in northern France in October.
The loss of the Dunkirk operation was a blow to GFG, a collection of metallurgical plants and foundries that Gupta built using billions of dollars from the supply chain finance company in bankruptcy Greensill Capital. The Greensill implosion in March last year left Gupta struggling to preserve an industrial empire that at its peak employed 35,000 people and had annual revenues of $20 billion.
Late last year, GFG sued one of AIP’s funds in a bid to recover the facility, saying the buyout group’s refusal to agree to a $180 million transfer to repay a debt had been made in “bad faith” with the aim of “appropriating” the foundry.
AIP rejected the allegation, arguing that accepting the payment could have constituted a “benefit of criminal conduct”, after claiming that the French government had told it “that there were reasons to believe” that the funds had been “embezzled” from a steel mill in the east of the country. Europe.
The legal dispute comes as French police raided the Dunkirk foundry last month as part of a criminal investigation into Gupta’s business empire.
Documents seen by the Financial Times appear to confirm that the money was transferred from Gupta’s Eastern European steel business to a British company which then sought to repay AIP. The transactions highlight how Gupta freely transferred funds between the unrelated entities that make up GFG, which is a collection of independent businesses rather than a consolidated legal group.
In court filings, GFG said it sent funds for the AIP payment from an entity called Liberty Finance Management, adding that it provided sufficient “know your customer” information about the UK company. LFM sent the first debt repayment of $81 million on July 15, the documents show.
On the same day, however, GFG’s Liberty Ostrava steelworks in the Czech Republic lent LFM €84 million, according to a loan agreement seen by the FT, which was signed by Gupta and two GFG directors.
Tens of millions of euros were also sent to LFM from sister steelworks Ostrava in the Romanian town of Galati to help fund the rest of the repayment, according to people familiar with the deals.
Gupta is the sole director of LFM, which has no other employees and describes itself as providing “cash management services to Liberty Group companies”. Its audited annual accounts are more than a year overdue, according to UK Companies House.
In a statement, GFG said that “there has been no misappropriation of the group’s money from any company.” The group added that “we have taken legal advice and taken thorough steps to ensure compliance with all applicable laws and regulations, and are satisfied that the transfer of funds to reimburse AIP did not breach any of them.”
The transfer came after Czech and Romanian steelworks had already come under scrutiny over the controversial sale of carbon credits which the companies use to offset their emissions.
In April 2021, the Czech factory sold carbon emission allowances worth around 40 million euros to its sister factory in Romania, sparking an outcry from politicians and unions who feared that the factory of Ostrava loses funds to modernize its operations. Former Czech Prime Minister Andrej Babis sent a letter, seen by the FT, to Gupta in April last year, saying he was “very angry” that an earlier promise to stop selling carbon credits was not held.
The Ostrava plant then sold tens of millions of euros in additional carbon credits in July 2021, according to people familiar with the matter.
GFG said it trades carbon credits “in the normal course of business” and has “always followed local regulations when making these transactions”.
The Czech and Romanian factories are also the main assets backing an outstanding €2.2 billion loan from Germany’s Greensill banking unit, whose collapse last year sparked a criminal investigation by German regulators. Greensill Bank also loaned an additional €76 million to Liberty Ostrava in 2020 with a guarantee from the Czech government.
GFG bought the Dunkirk smelter in late 2018 from mining group Rio Tinto, borrowing $167 million more than it originally paid for the asset, through a series of debt agreements.
According to documents seen by the FT, Liberty paid $372.5 million upfront for Dunkirk in December 2018, after borrowing $350 million from a group of banks and commodities trading firm Trafigura. Days after the deal was struck, asset manager BlackRock then loaned the Gupta companies an additional $115 million, a riskier loan because it had fewer rights to the smelter’s assets.
Around the same time, Greensill agreed to lend $74million to a holding company linked to the Dunkirk purchase in an even riskier loan, a debt the FT later revealed was bundled into funds sold to Credit Suisse clients.