Sanjeev Gupta’s GFG Alliance transferred money from an eastern European steelworks in an attempt to settle a debt with buyout group American Industrial Partners, according to documents that shed light on a legal battle sparked after the private equity business refused to accept the funds on the grounds it could amount to a criminal offence.
The thwarted payment in July last year was a last-ditch attempt by industrialist Gupta to keep control of Europe’s largest aluminium smelter in Dunkirk, which New York-based AIP had become a creditor to a few months earlier before eventually taking control of the facility in northern France in October.
The loss of the Dunkirk operation dealt a large blow to GFG, a collection of metal plants and smelters that Gupta built using billions of dollars from failed supply chain finance company Greensill Capital. Greensill’s implosion in March last year has left Gupta fighting to preserve an industrial empire that at its peak employed 35,000 people and had annual revenues of $20bn.
GFG late last year sued one of AIP’s funds in an attempt to reclaim the facility, saying that the buyout group’s refusal to accept a $180mn transfer to repay a debt was made in “bad faith” in an effort to “appropriate” the smelter.
AIP has rejected the allegation, arguing that accepting the payment might have constituted a “benefit from criminal conduct”, after it claimed the French government told it “there were grounds to believe” the funds had been “misappropriated” from a steel mill in eastern Europe.
The legal dispute comes as French police raided the Dunkirk smelter last month as part of a criminal probe into Gupta’s business empire.
Documents seen by the Financial Times appear to confirm that money flowed from Gupta’s eastern European steel business to a UK company that then sought to repay AIP. The transactions highlight how Gupta freely shifted funds between the unrelated entities that make up GFG, which is a collection of independent businesses rather than a consolidated legal group.
In court filings, GFG said it sent funds for the AIP payment from an entity called Liberty Finance Management, adding that it provided sufficient “know your client” information about the British company. LFM sent the first debt repayment of $81mn on July 15, according to the filings.
On the same day, however, GFG’s Liberty Ostrava steelworks in the Czech Republic lent €84mn to LFM, according to a loan agreement seen by the FT, which was signed by Gupta and two GFG directors.
Tens of millions of euros were also sent on to LFM from Ostrava’s sister steelworks in the Romanian city of Galati to help fund the rest of the repayment, according to people familiar with the transactions.
Gupta is the sole director of LFM, which has no other employees and describes itself as providing “treasury management services to Liberty group companies”. Its audited annual accounts are more than a year overdue, according to the UK’s Companies House.
In a statement, GFG said that “there was no misappropriation of group money from any company”. The group added that “we took legal advice and thorough steps to ensure compliance with all relevant laws and regulations, and are confident that the transfer of funds to repay AIP did not breach any of them”.
The transfer came after the Czech and Romanian steelworks had already come under scrutiny over the controversial sale of carbon credits that companies use to offset their emissions.
In April 2021, the Czech plant sold carbon emission allowances worth about €40mn to its sister plant in Romania, provoking an outcry from politicians and trade unions who feared the Ostrava plant would lose out on funds to modernise its operations. Former Czech prime minister Andrej Babis sent a letter, seen by the FT, to Gupta in April last year stating that he was “very angry” that an earlier promise to not sell further carbon credits was not kept.
The Ostrava plant then sold tens of millions of euros more carbon credits in July 2021, according to people familiar with the matter.
GFG said it trades carbon credits “as part of the usual course of business” and has “always complied with local regulations when carrying out these transactions”.
The Czech and Romanian plants are also the main assets backing an outstanding €2.2bn loan from Greensill’s German banking unit, whose collapse last year triggered a criminal probe by German regulators. Greensill Bank also lent a further €76mn to Liberty Ostrava in 2020 with a guarantee from the Czech government.
GFG purchased the Dunkirk smelter at the end of 2018 from mining group Rio Tinto, borrowing $167mn more than it initially paid for the asset, through a series of debt deals.
According to documents seen by the FT, Liberty paid $372.5mn upfront for Dunkirk in December 2018, having borrowed $350mn from a group of banks and commodities trading house Trafigura. Days after the deal closed, asset manager BlackRock then lent Gupta’s companies a further $115mn, a riskier loan as it had less claim on the smelter’s assets.
At around the same time, Greensill agreed to lend $74mn to a holding company tied to the Dunkirk purchase in an even riskier loan, debt that the FT later revealed was packaged into funds sold to Credit Suisse clients.
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