Exclusive: GFG obtained a Trafigura loan by offering aluminum at a reduced price – Sources | Invest News

By Clara Denina and Pratima Desai

LONDON (Reuters) – Sanjeev Gupta’s GFG Alliance secured a loan from Trafigura in 2018 by reaching a six-year deal to sell aluminum to the commodities trader at below market prices, told Reuters two sources with direct knowledge of the agreement.

The loan was used to help finance the December 2018 purchase of Europe’s largest aluminum smelter in Dunkirk, France, by GFG’s Liberty House, the two sources said.

They said the deal, which has not been made public before, suggests that the Dunkirk plant is less exposed to the broader financing problems faced by GFG Alliance because, unlike other parts of the conglomerate, it had funding other than that from Greensill Capital, which filed for insolvency last week.

A third source familiar with the matter said that the Dunkirk plant, whose aluminum production is crucial for the automotive, aerospace and packaging industries in continental Europe, generates cash and is not dependent on no Greensill for its funding.

Industry sources said GFG was relying on short-term funding from Greensill, but also used longer-term loans to buy steel and aluminum plants, including its Dunkirk plant. .

GFG said it would not “comment on the specific terms of our trade agreements.” Trafigura declined to comment.

Gupta said GFG is in talks with directors on a so-called standstill agreement, which means it could suspend debt payments to Greensill for an agreed period.

GFG, an umbrella company in Gupta’s network of steel, aluminum and energy companies, told unions last week that it had sufficient funding to meet its current needs, but was looking for alternatives long-term.

The deal to sell aluminum at a reduced price to Trafigura, signed in November 2018, according to a copy of the contract seen by Reuters, encouraged participation in the financing of Dunkirk because it provided the commodity trader with additional income in addition to interest. . earned thanks to the loan, the two sources said.

GFG bought aluminum at market prices, which it sold to Trafigura at a discount of $ 20 per tonne.

A consortium that included banks loaned GFG a total of $ 350 million to buy the Dunkirk smelter, a presentation document prepared for lenders and seen by Reuters broadcasts. Trafigura has pledged $ 150 million of this sum, said one of the first two sources, who requested anonymity.

Gupta contributed the remainder of the asking price of $ 500 million for the Dunkirk foundry, this presentation document indicates.

A fourth source said GFG had repaid part of the loan from Trafigura and the banks and the amount outstanding was $ 250 million. The Dunkirk aluminum mine served as collateral against the loan, the source added.

Trafigura has agreed to buy up to 560,000 tonnes of aluminum from GFG between 2019 and 2024, a minimum of 93,000 tonnes per year, according to the contract seen by Reuters. At current exchange-traded prices, 560,000 tonnes are valued at $ 1.2 billion.

This document also shows that the first 460,000 tonnes would be sold to Trafigura at a discount of $ 20 per tonne, revealing the additional amount GFG was willing to pay to secure the commodity trader’s financing.

(Reporting by Clara Denina and Pratima Desai; Editing by Veronica Brown and Alexander Smith)

Copyright 2021 Thomson Reuters.

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