Greensill Capital: 7,000 Australian jobs at risk as lender teeters on the brink

A watermelon farmer turned billionaire watches as his financial empire crumbles – and thousands of Australian jobs hang in the balance.

A Bundaberg farmer-turned-global billionaire watches his financial empire crumble this week – and thousands of Australian jobs could be at stake.

Lex Greensill, who grew up on Australia’s biggest sweet potato farm before embarking on a high-flying career in finance, is racing to rescue his struggling lender Greensill Capital after investment bank Credit Suisse froze billions of dollars in funding on Monday, kicking off an explosive chain of events that has rocked the financial industry.

Greensill Capital is now preparing to file for bankruptcy, according to the FinancialTimes and Bloomberg Newsand is working to sell “a large part” of its business to US private equity firm Apollo Global Management.

The deal is said to be worth $128 million.

This fire sale would virtually eliminate Greensill shareholders, including Japanese giant SoftBank, which poured $1.5 billion into the company in 2019.

The UK-based company, founded in 2011 and valued last year at $6 billion, is also in the crosshairs of Germany’s financial watchdog, which on Wednesday froze the operations of its Bremen-based subsidiary Greensill Bank. , citing an “imminent risk”. of over-indebtedness.

the FinancialTimes further reported on Wednesday that BaFin, the German regulator, had filed a criminal complaint against the management of Greensill Bank for alleged manipulation of the balance sheet – a crime punishable by up to three years in prison.

In its statement announcing the freezing of operations at Greensill Bank, BaFin expressed concern over alleged accounting irregularities, including in its dealings with the GFG Alliance group, headed by Indo-British billionaire Sanjeev Gupta.

“During a special forensic audit, BaFin found that Greensill Bank AG was unable to provide evidence of the existence of claims on its balance sheet that it had purchased from the GFG Alliance group,” said said BaFin.

WHAT IS GREENSILL CAPITAL?

Greensill Capital, like its bread and butter, is a supply chain finance company.

Its clients, until recently, included major companies like Telstra, Vodafone in the UK, Australian construction giant CIMIC and the UK’s National Health Service.

Supply chain finance is a way for large companies to effectively offer an alternative payment option to their suppliers.

A large company like Telstra will offer a supplier the option – in this case via Greensill – of receiving payment earlier, at the cost of a small discount on the face value of the invoice.

It is up to the supplier to decide whether it is more advantageous for him to be paid in a week, for example, or rather to wait in some cases up to 90 days to receive the full invoice value.

As any small business owner knows, payment delays are a major issue.

Waiting up to three months to get paid after providing goods or services can put a huge strain on cash flow. Rather than having to borrow money from their credit card to run the business, the supplier may decide it’s better to pay a small fee and get paid right away.

“My parents couldn’t afford to send me to university because we had to wait a long time for big retailers to pay us,” said the 44-year-old in the UK. Sunday time in a 2018 interview. “It got me very early on focusing on how this could be solved.”

As an intermediary, Greensill buys the invoice from the supplier and in turn receives the full amount of the invoice from, in this example, Telstra, at an agreed time in the future.

Greensill bought $140 billion worth of bills last year.

Or, to put it another way, the company lent that money to its customers, the big corporations.

The advantage for a company like Telstra is that the supply chain finance company usually agrees to extend the payment term, say from 30 days to 60 days, which gives them more flexibility on their balance sheet.

But rather than just take its share of the margin, Greensill then took those repayment agreements and “securitised” the debt, turning it into bonds which it then sold as financial products.

It was Greensill’s main source of funding.

Why, you might ask, would anyone buy them? Because in theory they are considered a safe investment in the short term, since the companies that have to cough up money are usually creditworthy high rollers.

WHAT WAS WRONG?

Things came to a head this week when Credit Suisse, which had sucked up $10 billion of Greensill’s debt bundles and sold them to pensions, wealthy clients and others, froze its financing funds. of the supply chain citing “considerable uncertainties in their accuracy assessment”.

Swiss asset manager GAM Holding, Greensill’s other major source of funding, also pulled the plug this week.

Credit Suisse’s Monday decision came the same day credit insurers Greensill cleared the expiration of policies covering more than $4 billion in assets, The Wall Street Journal reported.

Greensill had obtained credit insurance to ensure that investors holding its debts would be reimbursed in the event of default by any of the underlying customers.

But as early as July last year, Greensill’s insurers had informed the company that they had no plans to extend cover beyond March 1 this year.

Incredibly, the company only sought legal advice on its position last week.

Greensill went to the NSW Supreme Court to seek an emergency injunction that would have extended his insurance cover.

Lawyer Ruth Higgins SC told the court Greensill would face “catastrophic” consequences if the policies were not renewed. “Greensill Bank will not be able to provide additional working capital financing for Greensill customers,” she said in an affidavit.

“In the absence of this financing, some of Greensill’s customers are likely to become insolvent, defaulting on their existing facilities. This, in turn, may lead to further adverse consequences for third parties, including employees of Greensill’s customers. Greensill estimates that more than 50,000 jobs, including more than 7,000 in Australia, could be at risk.

It was not immediately clear which Australian companies were at risk of insolvency.

The court dismissed the claim, reprimanding Greensill for waiting to seek relief “within hours of coverage expiring”, “despite the policyholders’ position having been clarified eight months ago”.

While the request for an emergency injunction was denied, Greensill will return to court to argue the case on Friday.

GREENSILL RESPONDS

In a statement regarding allegations of criminality at Greensill Bank, a spokesperson said that “in practice Greensill Bank seeks external legal and audit advice before booking any new assets”.

“Greensill Bank began accounting for future receivables assets in June 2019,” it said.

“The Bank’s Management and Risk Committee received extensive advice from leading German and UK law firms which informed how the assets were classified. Our auditors reviewed and approved this classification at that time and in their subsequent audits.

“At the end of 2019 and beginning of 2020, the German deposit protection system (Prüfungsverband deutscher Banken) reviewed all bank assets and raised no objections.

“At the end of 2020 and the beginning of 2021, BaFin indicated that it disagreed with the way the assets were classified by Greensill Bank and ordered that they be changed.

“As per BaFin’s request, Greensill Bank has immediately complied and changed the way assets are classified.

“For the avoidance of doubt, Greensill Bank has always been transparent with its regulators and auditors about its approach to asset classification and the methodologies for determining those classifications.

“This afternoon BaFin issued a six-week moratorium on Greensill Bank.”

Regarding the reported sale to Apollo Global Management, the spokesperson confirmed that a deal was in the works but did not name the company.

“Greensill confirms that it has entered into a period of exclusivity with a leading global financial institution with a view to completing a transaction with them this week,” he said.

“This transaction is expected to include a large portion of Greensill’s business and its assets under management. The structure of the new company is still being determined and as soon as we have clarity on this, we will be able to communicate the impact of these changes on the roles.

“We expect the transaction to ensure that the majority of our customers will continue to be funded in the same way as they are now.”

[email protected]

Comments are closed.