UK authorities say Sanjeev Gupta’s Wylands Bank offered a bond financing program without checking whether the underlying assets existed or whether the purchaser of the underlying assets had financial incentives. increase.
Also, the bank measured the credit risk against the ultimate purchaser of the program, not the company (unnamed member) buying the receivables. in Gupta GFG Alliance – To buy more bonds.
The findings come as part of enforcement actions taken by the Prudential Regulatory Authority (PRA) this week. The lender avoided an £8.5m fine for being already dismantled, but was accused of ‘serious’ breaches of exposure limits and risk management requirements from December 2016 to May 2020. rice field.
Sam Woods, Chief Executive Officer of the PRA and Deputy Governor for Prudential Regulation at the Bank of England, said: .
The GFG Alliance corporate bond program is one of four deals selected by regulators. By March 2020, Wyelands had around £43m owed under the facility when the PRA blocked new deals.
A denial notice released this week said Wylands will ask before it begins buying bonds whether the inventory actually exists, can be segregated from that of other GFG companies, or is already being used in the manufacturing process. I hadn’t checked.
The bank also asks, “What economic rationale is [buyers] As part of our due diligence, we needed to be involved in the transaction.
The agency added that the GFG Alliance company canceled the invoices owed to the buyer at the end of each month and issued new invoices the following day.
Effectively, the practice meant a short monthly window, according to PRA, and Wylands “did not charge for inventory or make any claims.” [buyer] No payment has been received with respect to the accounts receivable and no payment has been received with respect to it. ”
We also increased our total Wyelands exposure. became economically dependent Regarding the actions taken by GFG.
In practice, the buyers of these underlying assets “appear to have not completed their share purchases,” the regulator added.
Another transaction covered by the PRA relates to Wyelands’ financing of two non-GFG special purpose vehicles (SPVs). This will be used to purchase aluminum products from one of his GFG companies and eventually finance the acquisition of a smelter by another of his GFG companies.
Regulators have said SPVs can only make a profit by trading these aluminum products in “very limited circumstances” and are actually used as inventories for smelters.
“Therefore, the commercial basis for any commodity SPV (or their respective owners) to participate in the transaction is unclear,” it said.
“Their involvement in the transaction ensures that the company’s debtors are entities unaffiliated with the GFG Alliance and that the company’s restrictions on lending to GFG under the Large Exposure Scheme are complied with. seems to have been intended.”
The PRA added that the SPV was not bankruptcy averted as intended as it was in fact financially dependent on one of the GFG companies.
In a statement, Wyelands said it welcomed the conclusion of the PRA investigation, adding:
A spokesperson for the GFG Alliance said:
“Shareholders injected so much money into Wylands Bank that all depositors were fully repaid and Wylands Bank depositors suffered no losses.
“Shareholders also provided funding to allow Wylands Bank to complete the regulatory process and to allow the bank to continue its operations to complete the winding down of its solvent.”
