Sanjeev Gupta is in talks with Glencore to refinance the debt of its European aluminum company, a deal that would allow the metals tycoon to retain control over one of its best assets.
Gupta’s GFG Alliance, which employs 35,000 people from the UK to Australia, is fighting to restructure and refinance its debt after the collapse of Greensill Capital, its main lender.
Greensill and his bond investors had $ 5 billion in exposure to GFG when the supply chain finance group imploded in March. GFG is also under investigation in the UK for suspected fraud, complicating efforts to find new funding. GFG said it would cooperate with the probe.
Glencore is in talks to refinance more than $ 500 million in debt at Alvance, Gupta’s aluminum business with assets in France and Belgium, according to two people familiar with the matter.
A deal with the London-listed miner and commodities trader would allow Gupta to remain the owner, unlike an earlier proposal by US private equity firm American Industrial Partners (AIP), which sought to purchase the asset.
A deal would be a boon to Glencore’s aluminum business if it were able to secure the metal supply, giving FTSE 100 a pipeline it could sell through its large trading arm.
Glencore’s move comes as aluminum prices have risen nearly 25% this year to exceed $ 2,500 a tonne as the global economy begins to rebound from the pandemic. Lightweight metal is used in everything from beverage cans to cars.
The jewel in Alvance’s crown is its foundry in Dunkirk, the largest in Europe. Liberty acquired the 280,000 tonne per year plant from Rio Tinto in 2018 for $ 500 million. GFG has estimated that Alvance has an enterprise value north of $ 1 billion, based on expected profits of more than $ 150 million for 2021, according to a GFG document from March.
Glencore’s aluminum unit, which already buys the metal from Liberty, is headed by Robin Scheiner. Bankers say he is keen to expand the business and has researched potential deals. He met Gupta in Zurich this year where they brainstormed a number of ideas, although they did not come to an agreement, according to people familiar with the matter.
Glencore declined to comment. GFG said it “continues to focus on restructuring and refinancing its business after the collapse of Greensill Capital. The Alvance portfolio is doing well, supported by favorable market conditions.
An agreement with Glencore would make it possible to repay several debt facilities in all of Alvance’s activities. The Dunkirk aluminum smelter has a loan of $ 260 million, while the Alvance rolling mill at Duffel has additional debt of $ 59 million. The company also has $ 131 million in riskier holding debt with BlackRock and $ 73 million in financing from Greensill.
A group of banks initially provided the loan to Dunkirk, alongside Glencore’s rival, Trafigura. The Geneva-based commodities trader still holds that debt, as banks mostly sold their positions to AIP this year, when the New York-based private equity firm sought to take control of the asset.
Trafigura also signed an aluminum deal with Gupta when it initially provided Dunkirk’s debt at the end of 2018. Alvance has an additional liability of $ 114 million resulting from disputes with the original sellers of the Dunkirk and Duffel assets.