Banks such as Credit Suisse and Citi Group are taking action on the loans they provided to GFG Alliance on fears that the conglomerate could collapse into administration in the near term.
On its part, GFG Alliance’s Sanjeev Gupta has actively presented plans to potential funders this week and requested that creditors act cautiously, according to media reports. These actions come within days after the UK government rejected GFG’s funding request for £170 ($234mn).
Some creditors fear that GFG may go into administration without sufficient working capital and, in the case of some UK units, operating losses. However, per reports, Gupta has pledged his steelworks will not shut down on his watch.
Creditors get cautious
This week, Credit Suisse lodged a court filing against GFG along with Citi Group. The Swiss banker closed four funds worth over $13bn after the Greensill Capital collapse. Now, it is seeking liquidation of some GFG units to recuperate funds for its investors. Citi filed the motion as a trustee of the Greensill bonds.
GFG is also on the radar for Greensill Bank’s German administrators who want to secure the company’s profitable assets in Australia.
Morgan Stanley and ICBC Standard Bank, lenders to GFG’s aluminum plant in Dunkirk, France, have also begun speaking with potential buyers for their loans to minimize exposure.
GFG is on the hook for about $5.4bn in loans to now failed Greensill Capital, its main financial backer. The debts are not due for three years, according to Gupta, but creditors may accelerate the timeline.
Alternatives for GFG
The UK government may finance the group after it declares insolvency and has lined up advisors for what could be a complex breakup of GFG’s assets. While the UK declined financial support, the government is voicing a buy British Steel commitment in its public infrastructure projects.
The court filings will take time and the outcome of negotiations between creditors and governments unknown, but demand for UK steel could help the steelworks keep doors open.
The conglomerate with 30,000 employees is now seeking to negotiate with Grant Thornton, Greensill’s administrator, and thwart efforts from creditors seeking to protect their positions but whose actions could affect assets and jobs not only in the UK but worldwide.
Of concern is that Greensill had secured interest on many of Liberty’s assets, which were used for collateral and Grant Thornton must come up with a plan for the company’s creditors by the end of this month.
According to reports, Gupta stated in a recent podcast that he has garnered interest from new financiers, but details are still evolving. He added that GFG’s global steel and mining operations were profitable and would support the UK segment.
Liberty Steel’s South Yorkshire specialty steel plants in Rotherham and Stocksbridge are due to restart production the week of April 5.
The fate of Infrabuild
The group’s InfraBuild and Whyalla Steelworks in Australia could become part of GFG’s financial predicament. Prior to insolvency, Greensill took a security position over the assets of two GFG companies, one in the UK and one in Australia with ownership roles in InfraBuild.
InfraBuild has an estimated revenue of $3.8bn and employs 17pc of GFG’s workforce but has Greensill’s debt against it. GFG’s workforce in the UK includes 3,000 steelworkers and 2,000 employees in Alvance’s aluminum business and Simec, a renewable energy operation.
InfraBuild operates two electric arc furnaces (EAFs) and 10 manufacturing mills in Australia with recycling and distribution sites.