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The collapse of Greensill Capital has put thousands of UK steel jobs at risk after the Australian finance firm filed for administration.
The company, which is one of the main sources of funding for Sanjeev Gupta’s GFG Alliance steel empire, told the High Court it had “no conceivable way” of meeting a $140m (£100m) repayment demand.
Liberty Steel, a subsidiary of GFG and the third largest steelmaker in Britain, owns nine steel sites across the UK and relied on Greensill for much of its financing.
On Tuesday Gupta warned that Greensill's collapse "creates a challenging situation" as it is one of the company's biggest clients.
Speaking at crisis talks with unions in his first public remarks since Greensill filed for administration, he said that some of Liberty Steel's operations in the UK were loss-making and that it needed to be addressed.
He added that the group was taking "prudent steps" to manage cash and was looking to secure alternative long-term finance.
Greensill, which specialises in supply-chain finance, was founded by Lex Greensill, who received the CBE for services to the economy in 2017.
The news of the collapse could have a devastating effect on the steel industry in the UK, with as many as 5,000 jobs in jeopardy.
“Sanjeev Gupta needs to tell us exactly what the administration means for Liberty’s UK businesses and how he plans to protect jobs”, union Community, which represents Liberty’s steel workers, said in a statement.
“The future of Liberty’s strategic steel assets must be secured and we are ready to work with all stakeholders to find a solution.”
Union officials are due to hold crisis talks on Tuesday with Gupta, 50, who was named the “saviour of steel” when he began buying UK steelworks in 2017.
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According to court documents on Monday, Greensill had “fallen into severe financial distress” and can no longer pay off its debts. Greensill said Gupta’s GFG Alliance business empire was “currently experiencing financial difficulties” and had “started to default” on payments.
The Financial Times reported that Gupta’s companies owe Greensill about £3.6bn ($5bn).
Accountant Grant Thornton has been appointed as Greensill’s administrator and is in “continued discussion with an interested party in relation to the purchase of certain Greensill Capital assets.”
It is believed that US private equity group Apollo Global Management is looking to buy parts of the troubled business.
“As these discussions remain ongoing, it would be inappropriate to comment further at this time,” Grant Thornton added.
Last week, Greensill’s insurance provider refused to renew a $4.6bn contract while lender Credit Suisse (CS) froze $10bn of funds linked to the firm, leaving it short of cash.
Business secretary Kwasi Kwarteng also held emergency meetings over the weekend with Jon Ferriman, the boss of Liberty Steel UK to discuss contingency plans.
A government spokesperson said: “The government has put together a far-reaching package of support to help businesses and workers through the coronavirus pandemic. We continue to regularly engage with businesses across all sectors, including those in the steel industry.”
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “The crisis is like a microcosm of the securitised mortgage debt house of cards which triggered the financial crisis in 2008.
“Now questions will be asked about why Greensill’s business partners stayed so reliant on the firm even after a number of warning lights began flashing.”
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