South Asian Insider
Opinion and Editorial
As Sanjeev Gupta Rose From Trader to Tycoon, Several Banks Backed Away
Four banks stopped working with British industrialist Sanjeev Gupta's commodity trading business, starting in 2016, after alleged paperwork problems in metal trades.
(Insider Bureau)-British industrialist Sanjeev Gupta's companies seemed to be prospering until his main lender, Greensill Capital, imploded last month. But long before Greensill collapsed, several banks had cut off the commodity trading business of Mr Gupta's Liberty House Group.
Four banks stopped working with Mr Gupta's commodity trading business, starting in 2016, after they became concerned about what they perceived to be problems in bills of lading - shipping receipts that give the holder the right to take possession of a cargo - or other paperwork provided by Liberty, according to interviews with 18 people directly involved in the trades, as well as internal communications seen by Bloomberg News. The banks include Sberbank PJSC, Macquarie Group Ltd, Commonwealth Bank of Australia and ICBC Standard Bank. Goldman Sachs Group Inc also stopped working with Mr Gupta's companies around that time.
In 2018, Sberbank sent a team to scour the brightly colored containers stacked in the port of Rotterdam, looking for the ones full of nickel that the bank had financed on behalf of Liberty. Yet each time investigators located one of the containers, they found it had already been emptied, according to two people involved in the matter. After checking about 10 of them, they gave up, the people said. Sberbank confronted Sanjeev Gupta at a meeting weeks later. He promised that his company would pay back the roughly $100 million it owed, the people said."At some point certain discrepancies were spotted within documentation and logistical data, which made Sberbank discontinue all operations with the company," the bank said in an emailed statement. "The issue was settled in pre-trial format. Thanks to the existing control systems, we incurred no financial losses through these operations and managed to unwind all transactions in the spring of 2019."GFG Alliance, which is made up of the companies controlled by Mr Gupta and his family, including Liberty, said in an emailed statement sent by a spokesman that it refutes any suggestion of wrongdoing.
"An internal investigation was conducted in 2019 by Liberty Commodities Limited (LCL)'s external legal advisors following enquiries regarding alleged rumours of double pledging," GFG Alliance said in the statement. "The investigation found no evidence to substantiate the rumours, nor was LCL ever subject to further complaints or proceedings."
Double pledging is the practice of improperly raising funds more than once using the same collateral.
As several banks dropped Mr Gupta's commodity trading unit, GFG Alliance came to rely more on Greensill Capital for loans - ultimately racking up debts of nearly $5 billion to Lex Greensill's trade finance company by March 2021, according to a presentation seen by Bloomberg News. Mr Gupta's commodity trading business alone has $1.04 billion of debt, of which $846 million is owed to Greensill, according to the presentation.
"LCL has ongoing banking relationships with separate financial institutions," GFG Alliance said in the statement. "Its reliance on Greensill was a natural consequence of the competitive nature of the trade finance market, which has been hugely challenging for all but the very largest commodities traders in recent years."
Now, with Greensill in insolvency and its German subsidiary under a criminal complaint after the regulator said it found irregularities in how the banking unit booked assets tied to GFG Alliance, Mr Gupta is trying to find new financing. But it's been tough. After Mr Gupta searched for would-be financial backers for weeks, Credit Suisse Group AG - which became a major lender to Mr Gupta's companies by buying debt packaged by Greensill - moved last month to push Liberty Commodities Ltd into insolvency. Mr Gupta said in interviews on BBC Radio 4 and Sky News on April 1 that the action made no sense and that he'd litigate it if needed.
Traders in the world of commodities have long relied on banks to help finance the flow of goods on their journey from origin to destination. From the banks' point of view, this type of financing is generally considered low risk. Should the trader run into financial difficulties, the bank can seize its collateral - the cargo - and easily recoup its money. That holds true so long as the shipping paperwork used, such as a bill of lading, is accurate.
ICBC Standard Bank stopped financing Liberty's commodity trading unit by early 2016, after discovering it had presented the bank with what seemed to be duplicate bills of lading, according to two people with direct knowledge of the matter. Commonwealth Bank of Australia pulled the plug on lending to Mr Gupta's trading business the same year after the bank financed a cargo of metal for Liberty, only to be presented with what appeared to be the same bill of lading a short time later by another trader seeking a loan, according to three people directly involved.
Then, in late 2016, Goldman Sachs, which had extended a credit line of about $20 million to Liberty to finance its nickel trade, stopped dealing with Gupta's trading company after being warned of alleged paperwork problems by a contact in the warehousing industry, according to three people familiar with the matter.
Spokespeople for Goldman Sachs, Commonwealth Bank of Australia and ICBC Standard Bank all declined to comment.
"No financial institution has been left out of pocket as a result of lending money to LCL," GFG Alliance said in the statement, referring to Liberty Commodities Ltd. "On the contrary, they have received substantial commercial returns."
By 2016, Liberty had already become one of the world's largest traders of nickel, according to an interview with Sanjeev Gupta in Metal Bulletin. Still, Liberty's containers of nickel would sometimes take an unusually long time to travel between Europe and Asia - instead of the normal sailing time of about one month, the voyage would take several months, stopping off at ports along the way for weeks at a time, six people said.
Metals trader Red Kite Capital Management, which also cut ties with Liberty, did so because it had become "uncomfortable" with some of the trades, said Michael Farmer, the company's founder who is also a member of the UK's House of Lords. "It was difficult to work out the commercial sense of some of the shipments, which resulted in our decision to err on the side of caution and discontinue such trades," said Farmer, who is one of the world's best-known metal traders. "We had no proof of any misdoings."
Savior of Steel
Sanjeev Gupta was born in Punjab, India, the son of a bicycle manufacturer. He moved to the UK as a teenager to attend boarding school and set up Liberty House, his commodities trading business, in 1992 while he was still an undergraduate student at Trinity College, Cambridge. He first hit the headlines in Britain in 2013 when he bought a troubled steel mill in Newport, South Wales, and restarted production at a time when many other steel plants were being closed down. He went on to buy a string of other struggling steelworks, earning him the nickname "the savior of steel."
Mr Gupta's GFG Alliance isn't a consolidated group, but a loose conglomerate of more than 200 different entities. The common thread running through both sides of his business, according to six former employees, was a chronic shortage of cash and intense pressure to find new ways to generate financing.
On the industrial side of the business, that meant buying one asset after another in rapid succession, including unloved aluminum and steel plants in Yorkshire, England, northern France and South Australia, then borrowing against the business's own inventory, equipment and customer invoices, often from Greensill.
On the trading side of the business, that often meant nickel. Used as an alloying element in the production of stainless steel, nickel is among metals deliverable on the London Metal Exchange, which means that its price can easily be hedged and that banks are usually willing to lend against it; and nickel is expensive, meaning a relatively small amount of space in a ship can hold a valuable cache of metal.
The commodity trading business grew rapidly. Revenue rose to $8.41 billion in the 15 months to March 2019, from $1.67 billion in 2012, according to the accounts of Liberty Commodities Group Pte, a Singapore holding company for the trading operations.
Macquarie Group became concerned about the paperwork underpinning some of Liberty's trades some four years ago, according to four people with direct knowledge of the events as well as written communications seen by Bloomberg News.
In one instance, the bank realized that nickel that it was supposed to have received in Antwerp, according to the shipping documentation, wasn't at the port, according to two people. Liberty eventually delivered the nickel to Macquarie, but at a different port and about two weeks later than was listed in the paperwork.
It wasn't the only time Macquarie's team had discovered discrepancies in Liberty's paperwork, the people said.
At a meeting in Macquarie's London offices, executives from the bank grilled Mr Gupta and his top lieutenants about the inner workings of the commodity trading business, three of the people said. Macquarie remained unsatisfied with the explanations, and by mid-2017, the bank had made the decision to stop all financing for Liberty, the people said.
China's COVID coverup and its terrible costs demand accountability. US must step up
The Biden administration's mounting Afghanistan, immigration, and spending woes threaten to obscure its failure to hold Beijing accountable for the d...
Amarinder Singh destroying himself: Congress leaders on ex-CM's move to side with BJP
(News Agencies)-Punjab Deputy CM Sukhjinder Singh Randhawa and state Congress in-charge Harish Rawat have criticised veteran party leader Capt Amarin...
Angry Captain, angrier farmers may end up helping Arvind Kejriwal, here's how
With former Punjab Chief Minister Captain Amarinder Singh announcing the formation of a new party and the central government clashing with protesting...
Three Indian Americans Appointed In White House Fellowship Programme
(Insider Bureau)-The White House on Monday named 19 young emerging leaders as its fellows for 2021-22, three of whom are Indian Americans.The prestig...
US and India are taking on China with a 'Middle Eastern Quad'
(SAI Bureau)-It's a crowded foreign policy week this week, with Indian officials participating in the Moscow-led round of talks with the Taliban on 2...
Cruise drug bust: Mumbai court grants NCB custody of Aryan Khan, 2 others till October 4
A Mumbai Court has granted the Narcotics Control Bureau (NCB) custody of Bollywood superstar Shahrukh Khan’s son, Aryan Khan, and two other accused ti...
PM Modi’s approval rating falls as India struggles to contain second Covid-19 wave: US firm
Approval ratings of PM Modi have fallen to a new low as India grapples with coronavirus pandemic, according to a US data intelligence company. Narendr...
International row created, Delhi ministers still insist Singapore Covid variant is real
Amidst the diplomatic storm that has ensued following Delhi CM Arvind Kejriwal’s claims of “Singapore variant” of Covid-19, Delhi ministers insist tha...
"India A Major Priority": US Yet To Decide On Allocation Of 80 Million Vaccine Jabs
A top US official said the allocation decision will be made on the basis of need and collaboration with key partners and COVAX. (Insider Bureau)-No...
Indian-Origin Chemist Among Tech 'Nobel' Prize Winners For Revolutionary DNA Technique
President of the Republic of Finland Sauli Niinisto, who is the Patron of the prize, presented the award to the scientists in a virtual ceremony on Tu...
© All rights Reserved. The south Asian, Published Weekly from New york.