Wyelands, a UK-based bank owned by GFG Alliance’s chairman and chief executive officer Sanjeev Gupta, is under regulatory scrutiny for funding Gupta’s own businesses, according to a report by the Financial Times.
Wyelands began operations around three years ago with attractive deposit rates and said it would use those deposits to fund and support industrial businesses.
Under the UK’s financial regulations, banks are usually permitted to lend up to 25pc of their core capital to related parties, including associated businesses and individuals. In 2019, Wyelands’ lending was brought under review by UK’s Prudential Regulation Authority, according to FT, though both sources declined to comment.
In a statement to Davis Index, GFG said that Wyelands Bank was purchased and built on the explicit basis that it would do business with GFG Alliance, and that GFG would use its network to introduce new clients to the bank.
THe company said all investors are assessed and cleared for suitability by Wyelands Bank’s internal processes, which operate independently of GFG.
“Among the new clients introduced to Wyelands are business associates, contacts, friends and former colleagues of Sanjeev Gupta. There is no secret about this – GFG frequently does business with trusted acquaintances and friends who go back a long way and is proud of doing so,” a spokesperson said.
Notwithstanding this, GFG Alliance is reviewing the terms of its relationship with Wyelands Bank in order to ensure that all dealings continue to conform to the highest standards of transparency and governance.
According to the FT, the regulatory scrutiny has placed a spotlight on methods used by Gupta to finance and build GFG Alliance, a group of family-owned, international industrial businesses that have grown extensively to $20bn in annual revenue. FT’s investigation alleges that GFG used Wyelands, whose customer deposits exceed £700mn ($904mn), for some of this capital.
The bank organized several deals with GFG so its initial exposure was divided across many outwardly independent units, according to FT. Wyelands did not categorize the intermediaries as associated groups, FT reports, but the company’s owners often had established relations with GFG, either through Gupta or his father.
In one such example, FT uncovered some documents showing two companies, in 2018, that were counterparties in what was referred to as receivables facility between the lender and a steel mill owned by Gupta. Receivables financing is a method of raising money from customer invoices.
FT reports this facility supplied tens of millions of pounds upfront for a steel company owned by Gupta. The deal was not classified by Wyelands as a related-party transaction because the bank would be repaid by the two companies when invoices were reconciled for steel products ordered, according to the report.
The two companies were also part of 12 entities that borrowed money from Wyelands in 2018 to buy hydropower plants in Scotland from a company owned by GFG Alliance. UK company filings show the chief financial officer signed loan documentation on behalf of all 12 companies.
The companies that acquired the hydropower plants maintain making independent, informed investment decisions using their own resources, and that the transaction was designed under advice of a large UK law firm, according to a GFG spokesperson.
The bank drew further scrutiny in August 2019 when it disclosed that £60mn were used in the purchase of Gupta’s new offices. Weeks prior, a city dignitary presented a question in parliament about the bank’s correlated party lending, following a previous investigation that first revealed the range of its connections to Gupta’s company.
The regulatory attention has resulted in Wyelands gradually reducing transactions with the entities that could be Gupta’s associates. While some of the debts given to these entities have been paid off, UK filings show other related debts are still unresolved, including $34mn of inventory financing connected to an aluminum smelter and several loans connected to portable containers that change waste oil into fuel at GFG’s plants.
GFG Alliance is reviewing its affiliation with Wyelands Bank to warrant that all dealings conform to high standards of governance and openness, according to a company spokesperson, who also said the group often does business with trusted long-time sources.
($1= £0.77)