Financial problems of Liberty Steel

As regulators and the media scrutinize the finances of London’s Greensill Capital and Germany’s Greensill Bank AG, they are trying to determine whether the British metal producer GFG Alliance has become a victim of Greensill’s financial methods or there are other reasons.

An initial insolvency complaint filed by Greensill, reported to the BBC on March 8, indicated that the GFG and its chairman Sanjeev Gupta are “financially distressed and unable to pay their debts,” the BBC reported.

The GFG Alliance is made up of a group of companies operating in the UK, Europe and Australia, including Liberty Steel and another steelmaker, InfraBuild, and aluminum producer Alvance.

Greensill Capital-GFG’s financial troubles came to light about two weeks after the German company Thyssenkrupp withdrew from negotiations to sell its steel assets to GFG.

Subsequently, government officials in Spain wondered if the sale of the GFG aluminum smelter there would be completed, and the governments of countries where GFG has existing facilities have tried to analyze the future of the conglomerate.

The BBC quotes a representative from the accounting and auditing firm Grant Thornton, which has been appointed administrator of Greensill Capital: “The co-administrators are continuing discussions with the stakeholder regarding the purchase of certain Greensill Capital assets. ”

However, previous media reports indicated that private equity firms that showed interest in portions of Greensill Capital’s portfolio have ditched GFG’s assets. In early March, Bloomberg reported that Bermuda-based Athene Holding Ltd. was one such company that “did not plan to take assets” associated with the GFG.

In the latest BBC news, Gupta and GFG defied skepticism by buying “seemingly disliked industrial assets [which] were considered by many to be unprofitable.”

In the United Kingdom, France and Australia, the company has received significant government support in what is considered a joint effort to maintain jobs and metal production capacity in those countries.

In the United States, Liberty Steel operated an old electric arc furnace (EAF) plant in Illinois and was trying to revive another old EAF plant in South Carolina. Efforts in South Carolina began to stall last year, in part due to low steel demand associated with COVID-19, but also following a swap of claims with a metallic supplier.

In its attempt to buy Thyssenkrupp factories, GFG appears to have faced a less desperate seller who was willing and able to carry out more serious legal due diligence than the company had previously faced in Europe or Australia.

A March 8 online report by Australian ABC News describes supply chain finance as “well established,” albeit somewhat complex. However, a variation of the technique developed by Greensill founder Lex Greensill is described by ABC as “based on a simple principle, incredibly profitable, and at the same time deeply flawed.”

According to ABC, the major flaw was that Greensill changed supply chain financing so that “the supplier was still paid at a slight discount, but the debt belonged to the [purchasing] company, not the supplier, and this simple shift allowed the company to renew and change repayment terms so that it does not give the impression that it is taking on additional debts. ”

ABC adds that some of Greensill’s customers, possibly with GFG at the top of the list, “are facing difficulties due to the COVID crisis.” Subsequently, credit insurers and banks “realized that some of these corporations had much more debt than they disclosed, and investors, feeling more risk than they expected, began to retreat.”

The BBC says it has contacted sources that indicate Greensill provided GFG with roughly $ 70 million a day in funding earlier in 2021. GFG did not provide an update on its own funding assessment, other than a comment in early March that it “has adequate funding for current needs” and that “its refinancing plans to expand its capital base and obtain longer-term funding are progressing well.”

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