Har har har har

Documents seen by The Sunday Times show that Liberty Steel Newport in south Wales used a circular trading scheme whereby it sold steel to a company with close links to the tycoon, which another Gupta business was then to buy back.

That £2.5 million sale allowed Liberty to borrow from Greensill via invoice discounting. Liberty was then free to sell the same steel again, this time to a different customer, and raise more cash from Greensill against that second sale.

Proving Adam Smith right once again.

New methods of lending money aren’t quite the point. The shortage is of people worth lending money to.

They might also be missing a trick here:

The documents show that Liberty Steel Newport sold £2.5 million of coils and tubes to VS International (VSI), a metals trading business with links to GFG. VSI was established in 2015 by Vikrant Sharma — who was until recently described as the president of Gupta’s Liberty Steel Holdings USA.

Liberty was then able to raise cash from Greensill, which provided finance against the invoice from VSI. Typically, Greensill lent Liberty 80 per cent of an invoice’s value, suggesting that it handed Liberty £2 million, to be repaid more than 100 days later.

Documents show that VSI would then sell that steel to Gupta’s CS Management Services, which in turn would sell the steel back to Liberty Steel Newport. That same steel was then to be sold for a second time, to a third party, with Greensill again providing cash against that invoice.

Don’t forget that Greensill did reverse factoring as well. So that sale from VSI to Gupta might also have been financed…..the reverse part means to factor invoices from suppliers, not just customers.

5 thoughts on “Har har har har”

  1. If this had been public knowledge two weeks ago the question would have been: Who is going bust first, Greensill or Gupta?

  2. I blow through here
    The money goes ’round and around
    Whoa-ho-ho-ho-ho-ho
    And it comes out here
    I push the first valve down
    The money goes down and around
    Whoa-ho-ho-ho-ho-ho
    And it comes out here
    I push the middle valve down
    The money goes down around below
    Below, below, deedle-dee-ho-ho-ho
    Listen to the cash come out
    I push the other valve down
    The money goes ’round and around
    Whoa-ho-ho-ho-ho-ho
    And it comes out here

  3. The Meissen Bison

    The puzzling aspect of this business (and I have to admit I’ve only followed it in a desultory fashion) is what procedures and safeguards Greensill had in place to monitor the supply of goods and the settlement of the trade accounts that it had financed.

    My experience is with so-called packing credits whereby a business A in country A receives an order for goods from a customer B in country B and applies to his bank to finance his related working capital needs up to the time of shipment.

    When the goods are ready to ship, company B’s bank issues a letter of credit in favour of company A which is advised/confirmed by A’s bank so the original loan is self-liquidating and the proceeds paid out to company A by his bank represent his profit and other costs.

    Certainly frauds can occur where purchase orders or invoices relate to ficitious or ‘stale’ transactions so the probity and credibility of the borrower and the vigilence of the lender are important.

    It’s hard to see how any lender could be negligent on quite the scale of Greensill. It’s also hard to understand how David Cameron if he understood the business half-way properly could bring himself to lobby on Greensill’s behalf because once things start going wrong in this type of business, the problem is systemic and fatal.

  4. ” It’s also hard to understand how David Cameron if he understood the business half-way properly could bring himself to lobby on Greensill’s behalf because once things start going wrong in this type of business, the problem is systemic and fatal.”

    TMB – You’ve answered your own question. Dim Dave was thick as two short planks. Didn’t halfway understand anything.

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