Greensill Capital faces unravelling after Credit Suisse suspends investment funds
Australian billionaire Lex Greensill’s firm hires restructuring advisers, amid concerns about exposure to steel magnate Sanjeev Gupta.
Greensill Capital is headed toward a rapid unravelling after Credit Suisse Group suspended $US10 billion of investment funds that fuelled the SoftBank Group Corp-backed finance start-up.
UK-based Greensill has appointed Grant Thornton to guide it through a possible restructuring and it could file for insolvency, the UK equivalent of bankruptcy within days, according to people familiar with the company.
Greensill is simultaneously in talks with private-equity giant Apollo Global Management to sell its operating business for around $US100 million, according to people familiar with the talks.
Credit Suisse’s asset-management arm said it would stop allowing investors to buy into or sell out of the Greensill funds immediately. Credit Suisse manages four private investment funds that rely exclusively on debtlike securities created by Greensill.
A part of the funds is “currently subject to considerable uncertainties with respect to their accurate valuation,” according to a notice the bank sent to investors. The Wall Street Journal reported that the bank was concerned about Greensill’s exposure to a single client, UK-based steel magnate Sanjeev Gupta, according to people familiar with the matter.
A Greensill spokesperson said the company acknowledged Credit Suisse’s decision, and that Greensill remains in advanced talks with potential outside investors.
UK-based Greensill is the brainchild of Australian former Citigroup and Morgan Stanley financier Lex Greensill. Founded in 2011, Greensill specialises in an area known as supply-chain finance, a form of short-term cash advance that lets companies stretch out the time they have to pay their bills.
Greensill packages those cash advances into bondlike securities that give investors a higher yield than they could get from bank deposits. Credit Suisse’s funds were a major buyer of those securities from Greensill, giving the start-up more firepower to do deals with more companies. Investors in the funds include pensions, corporate treasurers and wealthy families.
Greensill’s troubles have the potential to spread pain to prominent players in the investment world. In addition to its relationship with Credit Suisse, Greensill’s main financial backer is Japanese tech conglomerate SoftBank. It counts former UK Prime Minister David Cameron as an adviser. Greensill owns a bank in Germany and does deals that are closer to traditional merchant banking services, such as lending to large investment projects.
A SoftBank spokesperson didn’t immediately respond to requests for comment.
Mr Gupta is a former Greensill shareholder and Greensill has supplied financing to Mr Gupta’s GFG Alliance group of companies, which in the space of a few years have created a metals empire by acquiring failed steel mills and other distressed industrial businesses.
Last month, a bid by one of Mr. Gupta’s companies to acquire the steel operations of Germany’s Thyssenkrupp failed after the company ended talks over a deal.
German banking regulator BaFin last year began probing ties between Mr Gupta’s businesses and Greensill’s German banking unit, according to a person familiar with the probe. A report from Scope Ratings in 2019 said about two-thirds of the bank’s loan book was linked to Mr. Gupta’s businesses.
A spokesperson for Mr Gupta didn’t immediately respond to a request for comment.
Last October, a Greensill spokesperson said the company had regular dialogue with German regulators, and that the bank’s exposure to Mr Gupta’s companies was significantly lower at that point than at the time the report was released.
Another factor in Credit Suisse’s decision to suspend the funds: Greensill’s insurance policies, which provide protection in case assets default, lapsed in recent days, according to some of the people familiar with the matter. Greensill’s business model relied heavily on such credit insurance to give investors comfort that their money was safe.
A Greensill spokesperson said the company acknowledged Credit Suisse’s decision, and that Greensill remains in advanced talks with potential outside investors.
Talks are ongoing with Apollo. If a deal does come together, the private-equity firm would look to take over relationships with dozens of Greensill’s borrowers within days, including a collection of blue-chip companies and government agencies such as the UK’s National Health Service, according to people familiar with the talks.
Financing for those deals would come from Apollo’s insurance clients including Athene Holding, the insurance company in which Apollo holds a stake, according to the people. The insurance clients aren’t interested in assets tied to Mr. Gupta, the people added.
In supply-chain finance, Greensill competes with traditional banks such as Citigroup and JPMorgan Chase & Co. for investment-grade clients. Some of Greensill’s blue-chip clients include AstraZeneca and Ford Motor Co. Greensill has also extended financing to lesser-known companies, including small start-up businesses and companies that are considered higher-risk borrowers.
In a typical supply-chain finance deal, Greensill pays a company’s suppliers sooner than they would normally expect, but at a discount. The company then pays Greensill the full amount down the road. The supplier gets paid early, the company has more flexibility over its cash and Greensill is left with a small profit.
Credit Suisse’s move to cut off the Greensill funds comes at a challenging time for the financing upstart. Greensill had anticipated extending $US173 billion in financing last year, according to a presentation viewed by the Journal, but ultimately provided $US143 billion, flat from the year before. Several Greensill clients hit financial troubles last year, while companies it partnered with loosened ties.
Greensill has recently been trying to raise up to $US1 billion in fresh capital. That process was initially expected to have been completed by early January, but it has stalled as the firm seeks to address the issues related to its Gupta exposure, according to people familiar with the fundraising.
It isn’t Greensill’s first run-in with a fund suspension. In July 2018, Swiss asset manager GAM Holding AG suspended a $US12 billion fund after an internal whistleblower raised concerns about how the fund valued the Greensill assets. These included hundreds of millions of dollars of illiquid assets tied to Mr Gupta’s businesses.
The suspension didn’t appear to stop Greensill from expanding. After the GAM funds wound down, Credit Suisse’s funds grew rapidly, giving the start-up a fresh pool of investors that fuelled its ability to do supply-chain financing deals.
Greensill’s troubles could prove painful to SoftBank, which invested more than $US1.5 billion in the start-up through its massive Vision Fund. Greensill turbocharged other Vision Fund holdings by extending them short-term financing.
Not all of these deals have worked out. In December, Greensill forgave $US435 million in financing to construction start-up Katerra, around the same time the Vision Fund put in an additional $US200 million into it to keep it afloat. Greensill received a roughly 5 per cent stake in the Katerra in return. Last month, a Greensill spokesperson said investors hadn’t incurred losses related to Katerra.
Vision Fund investees Fair Financial Corp., an auto-financing company, and View Inc., a glass manufacturer, have also received financing from Greensill.
SoftBank’s multilayered roles in Greensill have drawn controversy. In addition to investing in Greensill itself, and receiving Greensill funds through its portfolio companies, SoftBank put $US700 million into the Credit Suisse-managed Greensill funds.
Last year, Credit Suisse executives grew concerned about potential conflicts of interest related to SoftBank’s roles. SoftBank ultimately redeemed its stake in the Credit Suisse funds, and the bank committed to protecting investors.
With Ben Dummett
Wall Street Journal
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