White Oak: why the ‘White Knight’ is so attached to the Gupta group of metals

When the Serious Fraud Office confirmed it was investigating Sanjeev Gupta’s GFG alliance on Friday, the potential rescuer of the metallurgical group appeared to walk away.

White Oak Global Advisors, which had entered into two emergency financing deals with Australian and UK steel mills Gupta, said on Friday it was “unable to continue discussions with a company that is the subject of a Serious Fraud Office investigation for money laundering ”. .

An hour later, he issued a seemingly contradictory statement, about GFG’s Australian operations: “White Oak continues efforts to refinance Liberty Primary Metals from Australian debt subject to due financial diligence and acceptable governance . ”

White Oak had been surprisingly willing to lend to GFG in the first place despite reports of suspected fraud. GFG has denied wrongdoing and pledged to “fully cooperate” with the SFO probe.

Today, it appears that – despite its initial statement – White Oak is willing to fund a company under SFO investigation.

The reason may be that the San Francisco-based private lender is not a new “white knight” but a company trying to manage the existing exposure to the metals group.

White Oak has already gained significant exposure to GFG, according to documents seen by the Financial Times and people familiar with the matter.

Last year, when Gupta’s main backer, Greensill Capital, was under pressure to reduce its exposure to industrial firms, White Oak stepped in to help, according to four people with knowledge of the matter.

In the spring of 2020, it began buying the steel mogul’s debt from the supply chain finance group, ramping up activity over the summer, two people said. It was structured by complicated deals that gave Greensill the option of buying it back later, the people said.

White Oak also provided financing directly to Gupta’s Liberty Group.

“[It is] known for his improvised transactions and his sitting in the delicate part of the capital structure, ”according to a person who worked with White Oak. Another described it as “a fairly aggressive fund,” saying the lender has been looking for “very, very good returns.”

A spokesperson for White Oak said he “does not recognize or agree with this characterization” of the company. “For more than a decade, we have been a trusted partner for thousands of SMEs around the world, which we help grow their businesses through funding,” he said.

The company has carved out an important role in a rapidly growing corner of financial markets in which private groups, less regulated than banks, provide loans to businesses that banks would generally consider too risky – often at interest rates. exorbitant.

He has drawn pension fund investments from groups as diverse as teachers in Lancashire, nurses in New York and workers at Boeing, who are looking to access the higher returns that riskier loans can offer.

And it has established itself as a provider of UK taxpayer-guaranteed loans to small businesses under a Covid-19 emergency program, distributing £ 250million to around 800 businesses, according to its chief executive Andre. Hakkak. The loans were made by its UK subsidiary, a 35-year-old lender based near Chester and known as LDF Group before White Oak bought it in 2018.

“Some people have called us a white knight,” Hakkak said in a video interview with trade publication ABL Advisor last month. “If you talk to some of our borrowers, they are very happy that we are stepping in quickly, guaranteeing the credit and trying to make them survive and thrive in a tough environment.”

However, he said, such a venture was risky: “How much risk do you want a manager to take to get a 10% return? This is the real question.

White Oak was prepared to agree to terms to fund part of Gupta’s sprawling industrial empire – an estimated A $ 430 million (£ 236 million) deal to refinance its Australian steel plants and a $ 200 million lifeline. sterling for its British steelworks – at a time when others had not. .

White Oak’s statement that he would withdraw from the talks created uncertainty for thousands of workers at GFG’s steel mills. The company’s factories in Yorkshire, which employ around 1,800 people, have come under particular pressure from the collapse of Greensill and falling demand from aerospace customers due to the pandemic.

The two main factories of Rotherham and Stocksbridge count among their customers some of the largest manufacturing companies in Europe, including Rolls-Royce, JCB and Safran. Plant managers were able to continue operating intermittently despite the desperate need for working capital by securing specific customer commitments for their steel.

White Oak’s relationship with GFG dates back to at least February 2019, when the US group provided an A $ 200 million loan facility to the Australian firm of Liberty. Greensill has put A $ 545 million on his side.

It worked well for White Oak. GFG raised a high yield bond in the fall of this year to pay off the debt, pay off the loan with a 10 percent return, said a person familiar with the matter.

White Oak subsequently stepped in to buy Liberty Commodities’ debt from Greensill, totaling more than $ 200 million, according to one person with knowledge of the matter.

Greensill and GFG Group declined to comment.

David Cameron, the former prime minister who worked as an adviser to Greensill, told a select committee on Thursday that he “asked a lot of questions” about Greensill’s exposure to GFG. “The comfort I always had was that there was a plan to deal with this concentration,” he said.

In early March of this year, White Oak had nearly $ 300 million in exposure to Gupta’s Liberty products, which was due to expire on May 20, a document seen by FT broadcasts.

White Oak also agreed to loan money to Westford Trade Services, a trade finance company that has done significant business with Gupta’s Liberty Commodities.

It provided Westford in May 2020 with an “uncommitted revolving trade finance facility,” typically a short-term finance agreement, according to documents filed with Companies House which show White Oak has a charge on Westford.

Westford Limited, a Hong Kong registered company that is part of the same group, is listed as a user of Greensill’s supply chain finance products which were sold through Credit Suisse funds the bank suspended in March. , according to a bank report. . Westford did not respond to requests for comment.

White Oak had made a foray into crisis-hit steel companies before lending to the Gupta empire. It provided a £ 90million line of finance to British Steel in July 2018, less than a year before it collapsed under former owner Greybull Capital.

At the time, Hakkak said the “partnership” represented “White Oak’s continued commitment and ambition for the UK and the wider European market”.

While British Steel was on the brink of insolvency, White Oak held talks with Liberty about a possible takeover bid for the company, according to people familiar with the matter.

Although this was unsuccessful, the lender did manage to get their money back when the company went into liquidation, despite ranking below some top secured lenders in the repayment queue.

“They were very commercial and uncompromising,” said a person familiar with their role at the time. “They would have loaded their pound of flesh from Gupta.”

Additional reporting by Oliver Barnes

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