LONDON (Reuters) – Sanjeev Gupta’s GFG Alliance secured a loan from Trafigura in 2018 by entering into a six-year contract to sell aluminum to the commodity trader at a discount to market prices, two sources with direct knowledge of the agreement told Reuters.
The loan was used to fund GFG’s December 2018 purchase of Europe’s largest aluminum smelter in Dunkirk, France, the two sources said.
They said the agreement, which was not previously made public, suggests that the Dunkirk plant is less exposed to the GFG Alliance’s larger funding problems because, unlike other parts of the conglomerate, it had different funding than Greensill Capital’s one Filed for bankruptcy last week.
A third source close to the matter said the Dunkirk plant, whose aluminum production is vital to the automotive, aerospace and packaging industries of continental Europe, generates cash and does not rely on Greensill for funding.
Industry sources said GFG relied on Greensill for short-term funding, but also used some longer-term loans to buy steel and aluminum plants, including its Dunkirk facility.
GFG said it would “not comment on the specific terms of our business agreements.” Trafigura declined to comment.
Gupta said GFG is in talks with administrators about what is known as a standstill, which means it could suspend debt payments to Greensill for an agreed period of time.
GFG, an umbrella company of the Gupta network of steel, aluminum and energy companies, told unions last week that it has sufficient funding to meet its current needs but is looking for long-term alternatives.
The agreement signed in November 2018 to sell aluminum to Trafigura at a discount, according to a copy of the contract viewed by Reuters, offered an incentive to participate in the Dunkirk financing as it provided the commodities trader with additional income on top of interest procured from the loan earned, the two sources said.
GFG bought aluminum at market prices and sold it 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 cottage, a presentation document prepared for the lenders and viewed by Reuters. Trafigura has pledged $ 150 million of that, said one of the first two sources to speak on condition of anonymity.
Gupta contributed the remainder of the $ 500 million asking price for the Dunkirk hut, as this presentation document shows.
A fourth source said GFG had repaid part of the loan from Trafigura and the banks and the outstanding amount is now $ 250 million. The Dunkirk aluminum operation was used as collateral for the loan, the source added.
Trafigura has agreed to buy up to 560,000 tons of aluminum from GFG, or at least 93,000 tons per year, between 2019 and 2024, according to the contract viewed by Reuters. At current market prices, 560,000 tons are worth $ 1.2 billion.
This document also shows that the first 460,000 tons would be sold to Trafigura at a discount of $ 20 per ton, showing the additional amount GFG was willing to pay to secure funding from the commodity trader.
Reporting by Clara Denina and Pratima Desai; Editing by Veronica Brown and Alexander Smith
