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Greensill used state-backed loans to cut exposure to Gupta-owned firms, says FT

Greensill used government-backed loans from three European governments in order to limit its exposure to businesses owned by Sanjeev Gupta, according to documents seen by the Financial Times.

The news outlet explains the tactics the now collapsed supply chain finance firm used as it “tried to pacify regulators” that were concerned about the risk from loans to Gupta’s GFG Alliance.

A report, from administrator Michael Frege of German law firm CMS Hasche Sigle, says Greensill devised a plan to use government guarantees granted under Covid economic measures to offset its credit risk. This came after its German-based banking subsidiary faced pressure from the country’s financial watchdog BaFin to curtail its extensive lending to GFG Alliance.

The report says that, at the end of July 2020, Greensill wrote to BaFin and outlined its plan that would see the firm use government-backed loans sent to three GFG Alliance companies from France, Italy and the Czech Republic as cash collateral against its existing loans to GFG Alliance. Its credit risk to GFG Alliance would also be offloaded to the governments.

According to the Financial Times, GFG Alliance’s companies in the three countries received four loans worth €190m (£162m) in total - with the respective governments providing guarantees of 80% or 90% of the value of the loans. According to the report, lawyers working for the administrator are examining the validity of the loan guarantees.

GFG Alliance and Greensill declined to comment to the Financial Times. Credit Strategy has reached out to BaFin for comment.

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