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When Sanjeev Gupta rose from trader to tycoon, several banks withdrew

(Bloomberg) – British industrialist Sanjeev Gupta’s businesses seemed to be thriving until his main lender, Greensill Capital, imploded last month. But long before Greensill collapsed, several banks had shut down Gupta’s Liberty House Group’s commodity trading business. Four banks stopped working with Gupta’s commodities trading business in 2016 after worrying about what they perceived to be problems with bills of lading – shipping receipts that give the owner the right to take possession of a cargo – or others from Liberty Documents provided based on interviews with 18 people directly involved in trading and internal communications from Bloomberg News. Banks include Sberbank PJSC, Macquarie Group Ltd., Commonwealth Bank of Australia, and ICBC Standard Bank. Goldman Sachs Group Inc. also stopped working with Gupta’s company at this time. In 2018, Sberbank sent a team to search the colorful containers in the port of Rotterdam for the ones filled with nickel that the bank had funded Freedom for. Every time investigators located one of the containers, they found that it had already been emptied, according to two people involved in the matter. After checking about 10 of them, they gave up, people said. Sberbank confronted Gupta at a meeting weeks later. Promising that his company would repay the roughly $ 100 million it owed, people said: “At some point, certain inconsistencies were discovered in the records and logistical data that resulted in Sberbank ceasing all activities with the company” the bank said in an email statement. “The problem was solved in a preliminary test format. Thanks to the control systems in place, we did not incur any financial losses as a result of these operations and we were able to process all transactions in spring 2019. “The GFG Alliance, made up of the companies controlled by Gupta and his family, including Liberty, said in an emailed statement from a spokesman that any suggestion of wrongdoing will be refuted. “An outside investigation was conducted in 2019 by Liberty Commodities Limited’s (LCL) outside legal advisors after investigations into alleged double-pledging rumors,” the GFG Alliance said in the statement. “The investigation found no evidence to support the rumors, and LCL has never been the subject of further complaints or proceedings.” Double pledging is the practice of raising funds inappropriately more than once with the same collateral. When multiple banks dropped Gupta’s commodities trading unit, the GFG Alliance relied more and more on Greensill Capital to raise borrowing and put Lex Greensill’s trade finance firm in debt close to $ 5 billion by March 2021, according to a presentation by Bloomberg News. Gupta’s commodities trading business alone has $ 1.04 billion in debt, of which Greensill is owed $ 846 million, according to the presentation. “LCL has ongoing banking relationships with separate financial institutions,” the GFG Alliance said in the statement. “The reliance on Greensill was a natural result of competition in the trade finance market, which has been challenging for all but the largest commodity traders in recent years.” Now that Greensill is in bankruptcy and its German subsidiary is under a criminal complaint after the regulator found irregularities in the banking entity’s posting of assets related to the GFG Alliance, Gupta is trying to find new funding. But it was tough. After Gupta spent weeks searching for potential financiers, Credit Suisse Group AG, which became a major lender to Gupta’s company through the purchase of Greensill-packed debt, moved to Liberty Commodities Ltd. last month. to drive into bankruptcy. Gupta said in interviews on BBC Radio 4 and Sky News on April 1 that the action made no sense and that he would litigate it if necessary. Credit Risks Traders in the world of commodities have long relied on banks to fund their journey from origin to destination. From the banks’ point of view, this type of financing is generally viewed as low-risk. Should the merchant run into financial difficulties, the bank can seize their collateral – the cargo – and get their money back easily. This applies as long as the shipping documents used, such as a waybill, are correct. ICBC Standard Bank stopped funding Liberty’s merchandise trading unit until early 2016 after discovering it had presented what appeared to be duplicate bills of lading to the bank, according to two people with direct knowledge of the matter. The Commonwealth Bank of Australia pulled the plug from lending to Gupta’s trading business that same year after the bank had funded a shipment of metal for Liberty, and a short time later from another trader who hired Goldman Sachs, who had granted Liberty about $ 20 million of credit to fund its nickel trade, ceased trading with Gupta’s trading company in late 2016 after being warned of alleged paperwork problems by A contact in the storage industry, according to three people familiar with the matter. The spokesmen for Goldman Sachs, the Commonwealth Bank of Australia and the ICBC Standard Bank declined to comment: “Due to the lending, no financial institution was left out of its pocket to LCL”, GFG Alliance said in the statement with reference to Liberty Commodities Ltd. ” On the contrary, they have received significant commercial returns. According to an interview with Gupta in the Metal Bulletin, ad has already become one of the world’s largest nickel traders. Even so, it sometimes took an unusually long time for Liberty’s nickel containers to operate between Europe and Asia. Instead of the normal sailing time of about a month, the voyage took several months and stopped in ports for weeks, six people said. Metal trader Red Kite Capital Management, which also severed ties with Liberty, did so because it had become “awkward” on some deals, said Michael Farmer, the company’s founder, which is also a member of the UK. s House of Lords. “It was difficult to figure out the commercial sense of some of the shipments, which led to our decision to play it safe and close such deals,” said Farmer, one of the world’s best-known metal dealers. “We had no evidence of wrongdoing.” The rescuer from SteelGupta was born in Punjab, India, the son of a bicycle manufacturer. As a teenager, he moved to the UK for boarding school and founded Liberty House, his commodity trading business, in 1992 while a student at Trinity College, Cambridge. It first made headlines in the UK in 2013 when he bought a troubled steel mill in Newport, South Wales and resumed production at a time when many other steel mills were closing. He bought a number of other struggling steel mills and was nicknamed “the savior of steel”. Gupta’s GFG Alliance is not a consolidated group, but a loose conglomerate of more than 200 different entities. According to six former employees, the common thread on both sides of his business was a chronic shortage of cash and intense pressure to find new ways to get funding. On the industrial side of the business, this meant buying one asset at a time with quick succession, including unloved aluminum and steel mills in Yorkshire, England, northern France and South Australia, then borrowing against the company’s own inventory, equipment and customer bills, often by Greensill. On the trading side of business, this often meant nickel. Nickel is used as an alloying element in the manufacture of stainless steel and is one of the metals that can be supplied to the London Metal Exchange. This means that its price can easily be hedged and banks are usually willing to lend against it. and nickel is expensive, meaning that a relatively small amount of space on a ship can hold a valuable metal cache. The commodity trading business grew rapidly. Revenue increased from $ 1.67 billion in 2012 to $ 8.41 billion in the 15 months ended March 2019. Four years ago, according to four people with direct knowledge of the events and written communications from Bloomberg News, the bank recognized the nickel it was louding, according to data from Liberty Commodities Group Pte, a trading holding company in Singapore Should have received shipping documentation in Antwerp. was not in port, according to two people. Liberty eventually delivered the nickel to Macquarie, but at a different port and about two weeks later than listed on the records. It wasn’t the only time Macquarie’s team discovered inconsistencies in Liberty’s records, people said. At a meeting in Macquarie London offices, bank executives briefed Gupta and his top lieutenants on the ins and outs of commodities trading, three respondents said. Macquarie remained unhappy with the explanations, and by mid-2017 the bank had made the decision to stop all funding for Liberty, the spokesman said. A Macquarie spokesman declined to comment on the matter, and the company turned to Sberbank. When this link got mad too, they were even more dependent on Greensill. For more articles like this, please visit us at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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