The British commodity tycoon, Sanjeev Gupta's GFG Alliance in 2018, obtained a loan from Singaporean multinational commodity trading company, Trafigura by agreeing with a six-year deal to sell aluminium to the world’s leading independent commodity trader at a discount to market prices, as it has been confirmed from the two industry professionals with direct knowledge of the agreement.
The loan was materialised to support purchase financing of Europe's largest aluminium smelter at Dunkirk, France, by GFG's Liberty House in December 2018, as per the sources.
The industry experts also added: “The agreement, which has not previously been made public, suggests that the Dunkirk plant is less exposed to wider financing problems 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.”
However, another industry source, other than the previous two, said: “The Dunkirk plant, whose aluminium output is crucial for continental Europe's auto, aerospace and packaging industries, generates cash and is not reliant on Greensill for finance.”
Industry sources said: “GFG relied for short-term finance on Greensill, but also used some longer-term loans for purchases of steel and aluminium plants including its plant in Dunkirk.”
According to a copy of the contract which was signed in November 2018, revealed that the deal to sell aluminium to Trafigura at a discount and also to give an incentive to take part in financing Dunkirk as it provided the commodity trader with extra income on top of the interest earned from the loan, the two sources said.
GFG bought aluminium at market prices, which it sold to Trafigura at a $20 a tonne discount.
A consortium that comprises banks lent a total of $350 million to GFG Alliance to acquire the Dunkirk smelter. Trafigura committed $150 million of this, as per one of the first two sources.
Sanjeev Gupta contributed the balance of the $500 million asking price for the Dunkirk smelter.
Now, a fourth source said: “GFG had paid back some of the loans from Trafigura and the banks and the amount outstanding it now owed were $250 million. The Dunkirk aluminium operation was used as security against the loan.”
Trafigura accorded to buy up to 560,000 tonnes of aluminium from GFG between 2019 and 2024 or a minimum of 93,000 tonnes of aluminium a year, as per the contract. At current exchange-traded CMAL3 prices, 560,000 tonnes is valued at $1.2 billion.
The contract also reveals that the first 460,000 tonnes would be sold to Trafigura at a discount of $20 a tonne, which unfolds the extra amount that GFG was willing to pay to secure the financing from the commodities trade.
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