Greensill clients ‘exposed’ by collapse

New court documents show London-based Greensill’s increasing desperation as it tried to force the extension of key insurance policies.

A visitor exits the building housing the Greensill Bank AG offices in Bremen, Germany this week. Picture: Bloomberg

Greensill Capital’s insurers were investigating the troubled finance service provider’s links to a host of its key clients ahead of a decision to withdraw coverage of key policies that triggered the crisis that could end in the collapse of the company headed by former Bundaberg farmer Lex Greensill.

New court documents released late Thursday and seen by The Australian, show London-based Greensill’s increasing desperation as it tried to force the extension of key insurance policies covering $US4.6bn ($5.9bn) worth of financing taken out by Greensill, the loss of which triggered a crisis that has engulfed the company this week.

The documents show lawyers for Lex Greensill pleaded with the NSW Supreme Court to force the extension of the policies, arguing their loss would trigger a chain of events that could lead to the insolvency of its clients – including a “major global resources group with significant operations based in Australia” – and the potential loss of 50,000 jobs across the world, including 7000 in Australia.

“Greensill has been informed by a number of clients which represent the majority of the exposures insured under the policies that the withdrawal of the facilities would have an immediate and serious impact upon their liquidity, would leave them without adequate time to make alternate arrangements, and would most likely cause them to become insolvent,” an affidavit filed with the NSW Supreme Court by Greensill’s lawyer said.

“Greensill therefore expects that clients representing a material proportion of the Facilities which become uninsured may default on their obligations to Greensill.

“Greensill anticipates that the defaults projected by Greensill, should the policies not be extended, would put at risk more than 50,000 jobs, including over 7000 in Australia, as well as potentially impacting the solvency of the plaintiffs.:

The documents show insurers BCC Trade Credit and Tokio Marine refused to extend the two policies that covered Greensill if its clients defaulted on loans, because they believed the broker that dealt with Greensill had written policies far beyond the financial limits he was allowed to authorise without more senior approval – as much as $10bn worth of liabilities, according to one email filed with the Supreme Court.

The discovery of the size of the potential Greensill liabilities triggered an internal investigation at the insurance companies, and demands for more information about the level of potential losses if key Greensill clients defaulted on lending agreements.

The clients include a group of companies linked to Greensill investor Softbank, including Chinese used-car platform Guazi and Fair Financial Corp, global shipping majors MSC and CMA CGM, and private equity provider General Atlantic – which in 2018 pumped $US250m into Greensill Capital.

The insurers also demanded further information on Greensill’s dealings with Liberty Delta – a group of companies associated with British industrialist Sanjeev Gupta’s GFG Alliance, Greensill’s biggest borrower.

In 2019, the year the insurance policies were extended, Greensill bankrolled the €740m ($1.14bn) acquisition of ArcelorMittal’s struggling European steel mills by Mr Gupta’s Liberty Delta.

The court documents do not allege any wrongdoing by Greensill Capital, and do not indicate any outcomes from the investigation, other than the decision to withdraw insurance coverage from the Greensill group of companies.

But despite the dire warnings of the loss of the insurance policies, on Wednesday Greensill withdrew its legal bid to force an extension of the policies.

Their loss has left Greensill poised to file for insolvency in the United Kingdom after insurance funding was withdrawn, a move which saw Credit Suisse suspend $US10bn of funds invested in loans arranged by the Bundaberg-raised financier.

Mr Greensill is now in talks with private equity giant Apollo Global Management to buy out the less risky parts of the business for a knock down price of $US100m.

However, any deal would not include Mr Gupta’s sprawling global metals and manufacturing empire, which includes South Australia’s Whyalla steelworks, leaving the industrialist scrambling to find a new provider of short term financing.

Lex Greensill faces a further headache after German banking regulators BaFin filed a criminal complaint in Bremen on Wednesday against his banking operation, Greensill Bank AG, alleging suspected balance sheet manipulation in the accounting of Mr Gupta’s companies.

Bank executives or auditors can face up to three years jail if found guilty.

BaFin has frozen the bank’s business, impacting €3.5bn of deposits, of which €2bn is related to Mr Gupta’s companies. Some although not all of the money is covered by German banking guarantees.

For Mr Gupta, Greensill has applied an extra financial squeeze after it took security over shares in his most profitable Australian businesses, Liberty Holdings Australia and Liberty Infrabuild – which own the most profitable sections of GFG Alliance’s Australian businesses.

They include money-making steel distribution and recycling centres that posted earnings of more than $200m last financial year.

That move would allow the troubled financial services firm to seize control of the shares if other parts of Mr Gupta’s empire default on loans made by Greensill.

Back in the UK, Mr Gupta’s own British bank, Wyelands, announced on Wednesday it would repay retail depositors in full as concerns over his empire escalate following a rare intervention by the Bank of England.