Credit Suisse Files Case for Winding Up of Liberty Commodities
BBC reported that Liberty Steel's owner Mr Sanjeev Gupta is facing further pressure after investors began legal action to have parts of his metals group
BBC reported that Liberty Steel's owner Mr Sanjeev Gupta is facing further pressure after investors began legal action to have parts of his metals group wound up. Citigroup, acting on behalf of Credit Suisse, began the action in London's insolvency court to recoup unpaid debts from Mr Gupta's GFG Alliance. The investors are seeking a winding up order against Liberty Commodities, a metals trading company owned by Mr Gupta. They are understood to be pursuing GFG over debts that were repackaged as bonds by Greensill. Lenders such as Credit Suisse can apply to a court and ask it to close a company that owes them money. To be successful, it has to show that the company cannot pay what it owes.
Liberty Commodities is one of the main units of Mr Gupta’s metals trading arm and specialises in trading non-ferrous metals and steel. It had revenues of USD 4.2 billion in the year to March 2020 and 13 employees. Before venturing into metals manufacturing, Mr Gupta made his first fortune from commodities trading.
There are worries similar action could be taken against other companies owned by Mr Gupta. Industry sources believe three or four companies have been targeted with court action and that an application to wind up Liberty’s Specialty Steel division in Rotherham could be next.
GFG said it is in constructive discussions with Greensill's administrators, Grant Thornton, about finding a consensual and amicable solution to its financial problems. A company spokesperson added "This dispute will take many months to play out in the courts, and in the meantime we are working hard on taking prudent steps to manage our cash and refinance our business. Most of GFG Alliance's businesses across its global portfolio are performing well and generating positive cash flow, supported by the operational improvements we've made and strong steel, aluminium and iron ore markets."
Mr Gupta is the founder of Liberty Steel and its holding company, GFG Alliance. GFG Alliance relied heavily on loans from the supply chain finance firm Greensill Capital, which was declared insolvent this month. GFG owed Greensill a reported GBP 3.6 billion before it collapsed, but has suspended repayment on those loans. Mr Gupta is attempting to negotiate a standstill agreement with Greensill’s creditors, which would allow his business to raise alternative financing.
Greensill specialised in loans meant to help large businesses pay their suppliers. It controversially raised money by packaging those loans and selling them off to banks like Credit Suisse, which then marketed them as low-risk investments to high-net worth clients. The system relied on insurance contracts that guaranteed investors would be paid, even if the companies, like Liberty, which borrowed money from Greensill, defaulted on repayments.
In Germany, a subsidiary of Greensill is facing criminal prosecution by the financial regulator, which has raised concerns about balance sheet manipulation. Greensill was thrown into crisis after the insurers and later Credit Suisse withdrew support early in March, citing concerns about the firm’s management and the growing pile of complex loans linked to the GFG Alliance. Credit Suisse has now shut down its Greensill-linked investment funds, worth nearly USD 10 billion and has been furiously trying to recoup funds for its investors, handing back over USD 3.1 billion so far. The bank has also warned that it will probably take a financial hit from Greensill’s collapse.