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Greensill and Gupta used ECA-backed Covid loans as cash collateral, documents show

Greensill used government-backed emergency Covid-19 loans to reduce its credit risk in relation to GFG Alliance companies, holding the funds as cash collateral for further lending to the group, documents reveal. 

A report by the administrators of Greensill Bank AG – the company’s Bremen-based banking arm – says GFG companies took out four ECA-backed loans, mainly from Greensill, as part of pandemic relief lending schemes during the second half of 2020. 

According to the report, which was finalised after a creditors meeting in June and has since been seen by GTR, the loans were disbursed to various members of the alliance – a loose network of companies with ties to metals tycoon Sanjeev Gupta. Two were issued in France, one in Italy and one in the Czech Republic. 

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However, rather than directly supporting the operations of the GFG Alliance borrowers, the funds were immediately deposited at Greensill Bank. 

The deposits would then be used as cash collateral supporting further lending by Greensill to GFG. As of June, the loans – which together totalled around €190mn – had not been repaid, the report says. 

The report says law firms in the three countries have been tasked with assessing whether the ECA guarantees can still be considered valid, and whether “incorrect use of the loan funds as cash collateral for other financing could render the guarantee cover null and void”. 

The purpose of the cash collateral arrangement was to reduce Greensill’s credit risk in relation to GFG companies, according to a letter the supply chain finance lender sent to German regulator BaFin in July 2020.  

Because the loans were government-backed, Greensill Bank’s credit risk would in effect be secondary to the country risk of each ECA guarantor. 

By mid-2020, Gupta-linked companies had become dependent on financing from Greensill after other lenders had cut ties, while Greensill built up significant exposure to the group as one of its largest customers. 

The extent of Greensill’s group-wide exposure to GFG is not known, but a progress report filed last month by its UK administrators, Grant Thornton, says Greensill Capital UK’s balance sheet shows more than US$590mn is owed by GFG across 34 “buckets” of indebtedness. 

The German report gives details of the government-backed loans, though does not name the end borrowers or the non-ECA parties involved. 

Two were backed by a 90% guarantee from French ECA Bpifrance. Both were disbursed in December 2020 and totalled €18mn and €10mn.  

They were subject to a guarantee commission payable by April 2021, but that payment deadline was not met, the report says. 

Luxembourg publication Delano stated in May that the first of those two loans was paid to Liberty Aluminium Poitou, a smelting plant taken over by Gupta the previous year. Delano said the loan was later subject to a preliminary investigation by the public prosecutor’s office in Poitiers, France. 

The FT revealed this week that the case has now been folded into a wider probe by Paris prosecutors, which is targeting Gupta’s French operations in relation to alleged misuse of corporate assets and money laundering. 

The two other ECA-backed loans were provided in Italy and the Czech Republic, backed by Sace and Egap respectively. 

The Sace-backed loan totalled €146mn, around a third of which was provided by an unnamed Italian lender, and was issued in August 2020. Greensill’s portion totalled €85mn, with an ECA guarantee applied to 80% of that value. 

Reuters reported in March 2021 that the loan was granted to GFG Alliance company Liberty Magona, with a tenor of three years. 

The Egap-backed facility, also provided in August, totalled €76mn and was backed by a 90% guarantee. In this case, Greensill Bank says the deposited amount was later paid out to GFG companies and so was no longer used as cash collateral. 

Sace, Greensill and GFG Alliance did not comment when contacted by GTR, while representatives from Bpifrance and Egap did not respond. 

Greensill had previously sought to obtain a £500mn loan backed by UK Export Finance (UKEF), according to an investigation by the National Audit Office, an independent public spending watchdog. 

The loan application was submitted in February 2020 under UKEF’s export development guarantee scheme, designed to support UK exporters’ day-to-day business activities, but was rejected by the agency. 

Due diligence carried out by UKEF led to “concerns relating to Greensill’s governance and how exposed Greensill might have been to some of its customers”, raising its risk profile as a potential beneficiary of the scheme, the audit office said. 

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