Scottish government increases Gupta guarantee provision to £ 161million

The Scottish government took a £ 161million provision against a guarantee it gave to Sanjeev Gupta’s company, underlining the risk to taxpayers of a complicated deal that secured the tycoon’s takeover metals from the last British aluminum smelter.

Scotland has increased its provision against a taxpayer guarantee linked to the Gupta metallurgical plant in Lochaber from £ 37million to £ 161million. The increase was disclosed in an audit of the Scottish Government’s latest Consolidated Accounts released this week, which said the change reflected “uncertainty over the financial stability” of the Gupta industrial empire at the end of March. .

The 50-year-old conglomerate came under intense pressure this month when its main lender Greensill Capital collapsed, sparking a financial and political scandal. Gupta’s GFG Alliance group of companies are currently under investigation by the UK’s Serious Fraud Office on suspicion of fraud and money laundering.

The Scottish government told the Financial Times on Friday that the value of its collateral security package exceeded its remaining financial exposure, citing “an analysis prepared by independent advisers”.

Scotland provided the £ 586million guarantee in December 2016 to allow the Gupta family business to acquire the Lochaber smelter near Fort William and two hydropower plants near Rio Tinto. The government did not disclose the full amount of the guarantee until last month after a nearly two-year freedom of information campaign by the FT.

The guarantee enabled the government to support 25 years of electricity purchases by Sanjeev Gupta’s company from another company owned by his father. Greensill was then able to turn that contract into £ 295million of debt with the same credit rating as UK sovereign bonds, these funds were then used to purchase the Lochaber smelter.

Gupta, once hailed as the “Savior of Steel” due to his promise to resuscitate dying metal factories, garnered widespread support for Holyrood, which even allowed him to host a lavish banquet at the Castle of Edinburgh in 2016 to celebrate its takeover of a struggling steelworks.

However, the ruling Scottish National Party has come under increasing scrutiny for its dealings with the GFG Alliance, with a government minister telling the Scottish parliament earlier this week that he may have broken state aid rules in a 2016 agreement that saved the Dalzell steel plant.

The FT previously reported that GFG stopped paying a £ 7million government loan backing the steelworks last year, after shifting part of the taxpayer’s loan proceeds elsewhere in the industrialist’s empire.

The Scottish Government has said the provision in the accounts, which are prepared by the Auditor General of Scotland, was based “on a technical assessment of a series of credit risk scenarios”.

“The guarantee has not been called, while the change in the provision is only an accounting adjustment and has no impact on Scottish government spending,” he added. “This is not a forecast of likely results with respect to the warranty and the provision remains under review and is subject to change.”

The Lochaber transaction was the first significant transaction that Greensill closed for Gupta. It also turned Gupta into the UK’s fifth-largest landowner, as his family took control of a 114,000-acre hunting estate in the foothills of Ben Nevis.

At the time, Gupta said the investment could create 2,000 new jobs in the Lochaber area, but the Scottish government this year revealed fewer than 50 more people had been hired. The Auditor General of Scotland report this week noted that agreements such as Lochaber, where the government had played a “direct role in providing financial support to private companies,” had “failed to deliver the expected results and [are] unlikely to obtain good value for money ”.

This assessment drew the condemnation of the guarantee from Willie Rennie, former leader of the Scottish Liberal Democrats.

“Gupta has a valuable government guarantee, which [he] was able to use to secure a financial return to his business, ”Rennie told the FT. “Scotland is about to pay millions of pounds, with next to nothing in return.”

In a statement, GFG said the Lochaber smelter “remains a profitable operation” and that “the group’s continued commitment to operations and to investing in a new recycling and aluminum billet plant will secure their long-term future. Ultimately, will create new high-quality jobs in the region and provide opportunities for the local supply chain ”.