Sanjeev Gupta is in talks with Glencore to refinance debt at his European aluminium business, a deal that would allow the metals magnate to retain control of one of his best assets.
Gupta’s GFG Alliance, which employs 35,000 people from the UK to Australia, has been battling to restructure and refinance its debt after the collapse of Greensill Capital, its main lender.
Greensill and its debt investors had $5bn of exposure to GFG when the supply chain finance group imploded in March. GFG is also under investigation in the UK over suspected fraud, complicating the efforts to find new financing. GFG has said it will co-operate with the probe.
Glencore is in discussions to refinance more than $500m of debt at Alvance, Gupta’s aluminium business with assets in France and Belgium, according to two people familiar with the matter.
An agreement with the London-listed miner and commodity trader would allow Gupta to remain as owner, in contrast to an earlier proposal from US private equity firm American Industrial Partners (AIP), which was looking to buy the asset.
A deal would be a boon for Glencore’s aluminium business if it is able to secure supply of the metal, giving the FTSE 100 company a pipeline it could sell on through its vast trading arm.
The move by Glencore comes as aluminium prices have surged almost 25 per cent this year to above $2,500 a tonne as the global economy begins to rebound from the pandemic. The lightweight metal is used in everything from drinks cans to cars.
The jewel in the crown of Alvance is its Dunkirk smelter, the largest in Europe. Liberty acquired the 280,000 tonne-a-year plant from Rio Tinto in 2018 for $500m. GFG estimated Alvance had an enterprise value north of $1bn, based on expected earnings of more than $150m for 2021, according to a GFG document from March.
The aluminium unit at Glencore, which already buys the metal from Liberty, is run by Robin Scheiner. Bankers say he is keen to expand the business and has been looking for potential deals. He met Gupta in Zurich this year where they brainstormed a number of ideas, although they did not reach an agreement, according to people familiar with the matter.
Glencore declined to comment. GFG said that it “continues to focus on the restructuring and refinancing of its businesses following the collapse of Greensill Capital. The Alvance portfolio is performing well, supported by strong market conditions.”
A deal with Glencore would repay several debt facilities across the Alvance business. The Dunkirk aluminium smelter has a $260m loan against it, while Alvance’s rolling mill in Duffel has a further $59m of debt. The business also has $131m of riskier holding company debt from BlackRock, and $73m in financing from Greensill.
A group of banks originally provided the loan at Dunkirk, alongside Glencore’s rival Trafigura. The Geneva-based commodity trader still holds this debt, whereas the banks mostly sold their positions to AIP this year, when the New York-based private equity firm sought to wrest control of the asset.
Trafigura also signed an aluminium agreement with Gupta when it originally provided the Dunkirk debt at the end of 2018. Alvance has a further $114m in liabilities stemming from disputes with the original sellers of the Dunkirk and Duffel assets.