The government said any payments related to these bonds in the event of default would come from its Westminster-funded capital budget, which is used to build schools and hospitals. “It’s weathering the storm until where the wheels plant is generating revenue,” said general manager Kerry McDonald at the site one morning in March. GFG has said it plans to boost profitability at the aluminum smelter by building an alloy wheels plant. The smelter has been loss-making, but when combined with the adjacent power plant the joint operations are profitable – generating at least a few million pounds annually according to the most recent public accounts available. Annual repayments to bondholders are currently about 15 million pounds and are due to double over the next decade, the people familiar with the matter said. Bond holders are due to receive the roughly 575 million pounds by 2042, according people familiar with the matter and public filings. Gupta used the government-backed income stream to borrow money from investors via a bond sale.
The government guaranteed 80 percent of the value of a 25-year power supply contract between the power plant and the smelter. The guarantee relates to payments from the aluminum smelter - located in the West Highlands town of Fort William - to an adjacent hydro power plant that supplies its electricity, both purchased by GFG in 2016. “There should be a really rigorous evaluation of the current liability and whether it makes any sense to incur any future liabilities.” In Scotland, Labour is a rival to the governing Scottish Nationalist Party. Providing a guarantee of that size to protect so few jobs “is bonkers,” said Hodge, a UK lawmaker for the Labour Party. Margaret Hodge, a British lawmaker and former head of the UK parliament’s Public Accounts Committee, when presented with Reuters’ findings said taxpayers didn’t appear to be getting good value for money because they were taking on a large financial risk to protect a modest number of jobs. “All debt has been and is being serviced,” GFG said of the bonds the guarantee underpins. When asked about the size of the guarantee during a February interview, Gupta said the Reuters figure “sounds about right.”Īn Indian-born British national, Gupta is executive chairman of GFG Alliance, which manages the industrial, finance and metals investments of the Gupta family. It added that it has “obtained appropriate protections in support of the guarantee” and that the deal was approved by Scotland’s cross-party finance committee. UK government bodies are not required to publish information on the size of contingent liabilities such as guarantees, although some do. The government declined to comment on the size of the guarantee or the possibility of further support, citing commercial confidentiality. The Scottish government said it carried out appropriate due diligence with the help of accounting firm Ernst & Young LLP. The size of the guarantee and the promise of additional support indicate that the risk to taxpayers, who are on the hook if Gupta’s GFG Alliance doesn’t repay the debt underpinned by the guarantee, is greater than previously known.
The smelter employs about 100 people, according to GFG Alliance. The Scottish government – which has publicly said it provided the guarantee to safeguard jobs at Britain's last-remaining aluminum smelter - has also told the company it could provide additional support worth hundreds of millions of pounds subject to further investment, the people familiar with the matter say.
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