UK taxpayer exposed to Gupta and Greensill via £1bn debt guarantees

UK taxpayers are exposed to more than £1bn of debt from the troubled business empire of steel magnate Sanjeev Gupta and the collapsed finance group Greensill Capital via three government guarantees.

Using a state-backed coronavirus lending scheme, Greensill advanced hundreds of millions of pounds to companies linked to Gupta, according to people familiar with the matter, a much higher amount than previously known.

Officials are now working to assess whether the government has to stand behind the loans after Greensill filed for administration this week, threatening the future of Gupta’s GFG Alliance, which was heavily reliant on the lender’s financing.

In a second scheme, the Scottish government also provided guarantees worth about £575m to GFG when it bought an aluminium smelter in Lochaber and two nearby hydropower plants.

The third government programme is the trade credit reinsurance scheme, put in place last year to ensure insurers did not pull their coverage as the pandemic hit.

Officials at the Department for Business, Energy and Industrial Strategy have had discussions with the Association of British Insurers to try to assess potential taxpayer losses linked to the fallout of Greensill’s collapse, according to people familiar with the matter. The ABI said it was “too early” to judge the impact. BEIS declined to comment.

The FT first revealed last year that Greensill had provided businesses with ties to Gupta with funding loans under a coronavirus lending programme, which benefit from an 80 per cent government guarantee. 

At least a substantial portion of these loans was booked through Greensill Bank in Germany, according to the people. German regulators have been discussing the issue with their British counterparts.

Under the 2016 Scottish deal, the nation’s government agreed to stand behind the smelter’s electricity purchases for 25 years if the business did not fulfil its obligations to pay for contracted power. The total value of the guarantees associated with the power purchase agreement is estimated to be around £575m. Actual taxpayers’ exposure is estimated to be less because the power would be sellable even without the plant. Audit Scotland in December put the government’s exposure to possible default at £37m.

To ensure that insurers did not respond to the Covid-19 crisis by reining back their trade credit coverage, especially for riskier businesses, the government put in place guarantees of up to £10bn for the sector — following similar initiatives in Germany, France and Canada.

Essentially, the government stepped in as a reinsurer, taking a share of insurers’ eligible trade credit premiums in exchange for taking on exposure. In December, the scheme was extended until the end of June 2021.

A question remains as to whether insurance supporting the financing arrangements for the supply chain that were offered by Greensill would be covered. It only covers certain types of “permitted securitisation structures”. Also, one of Greensill’s big insurers, Japan’s Tokio Marine, is not participating in the UK scheme. Still, any failure by Greensill borrowers to pay their suppliers could lead to a claim on those suppliers’ own trade credit cover, insurance experts said. 

GFG and Greensill’s administrator Grant Thornton declined to comment. Greensill did not respond to a request for comment.

Additional reporting by Mure Dickie