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Financing of highly-leveraged global steel group

The Challenge

Our client was considering financing a group of companies with worldwide steel assets worth over $20bn. There were rumours in the market that the company was over-leveraged and may be struggling financially. Greyhawk was instructed to investigate the credibility of these rumours and to identify other risks regarding the company’s debt position, market reputation and probity.

The Solution

Greyhawk investigated the group’s activities in Australia, France, India, the UK and the US. We identified examples of deals not completing, legal action by trade creditors and adverse findings by courts and regulatory bodies. Through in-depth analysis of disclosure by over fifty group companies we demonstrated a pattern of poorly documented related party transactions and intra-group lending. We discovered a loophole in UK filing requirements which had enabled the group to delay filing financial statements and conceal its true financial position. We also raised significant concerns over the group’s relationship with a “shadow banking” lender. A programme of targeted interviewing with market participants uncovered concerns about the long-term viability of the group, its over-reliance on guarantees from local government agencies and the credibility of its CEO.

The Result

Folllowing several discussions of our findings, our client did not proceed with the transaction. Three months later, the steel company was facing insolvency and was under investigation by the Serious Fraud Office.