Exclusive: GFG secured Trafigura loan by offering aluminum at a discount – sources | The mighty 790 KFGO


By Clara Denina and Pratima Desai

LONDON (Reuters) – Sanjeev Gupta’s GFG Alliance secured a loan from Trafigura in 2018 when it entered into a six-year deal to sell aluminum to the commodity trader at below market prices, two officials told Reuters. 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 previously been made public, suggests the Dunkirk plant is less exposed to the wider funding issues faced by GFG Alliance because, unlike other parts of the conglomerate, it had funding other than from Greensill Capital, which filed for insolvency last week.

A third source familiar with the matter said the Dunkirk plant, whose aluminum production is crucial to continental Europe’s automotive, aerospace and packaging industries, generates cash and is not dependent on Greensill for its funding.

Industry sources said GFG relied on short-term funding on Greensill, but also used longer-term loans to purchase steel and aluminum plants, including its Dunkirk factory.

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

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

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

The agreement to sell aluminum to Trafigura at a discount, signed in November 2018, according to a copy of the contract seen by Reuters, provided an incentive to participate in the financing of Dunkirk as it provided the commodity trader with additional income on top of that. interests. earned from the loan, the two sources said.

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

A consortium including banks loaned a total of $350 million to GFG to buy the Dunkirk smelter, according to a presentation document prepared for the lenders and seen by Reuters. Trafigura has committed $150 million of that amount, said one of the first two sources, who spoke on condition of anonymity.

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

A fourth source said GFG had repaid part of the loan from Trafigura and the banks and the amount still owed was $250 million. The Dunkirk aluminum operation acted 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 stock market prices, 560,000 tonnes is valued at $1.2 billion.

This document also shows that the first 460,000 tons would be sold to Trafigura at a discount of $20 a ton, revealing the extra 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)

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