Greensill risks insolvency after suspension of investment funds by Credit Suisse
Specialty finance firm Greensill Capital headed for rapid dismantling after
Group AG suspended $ 10 billion in investment funds that fueled the
SoftBank Group Corp.
With a key funding source frozen, Greensill appointed Grant Thornton to guide him through a possible restructuring, and he could file for bankruptcy, the UK equivalent of bankruptcy, within days, according to people close to the company. .
Greensill is simultaneously in talks with private equity giant
to sell its operations for around $ 100 million, according to people familiar with the talks. While a deal would not cover all of Greensill’s assets, the amount is a fraction of its maximum valuation of $ 4 billion.
UK-based Greensill is the brainchild of former Citigroup Inc. and Morgan Stanley financier Lex Greensill. Founded in 2011, Greensill specializes in an area known as supply chain finance, a form of short-term cash advance that allows businesses to increase the time they have to pay their bills.
Greensill bundles these cash advances into bond-type securities that offer investors a higher return than they could get from bank deposits. Credit Suisse funds were a major buyer of these securities, giving Greensill the firepower to grow its business. Investors in the funds include pensions, corporate treasurers and wealthy families.
Greensill’s problems came to a head on Monday after Credit Suisse announced it would block investors from buying or selling four private equity funds that rely exclusively on securities created by Greensill.
Credit Suisse has frozen the funds because some of their assets are “currently subject to considerable uncertainty as to their precise valuation,” according to a notice the bank sent to investors.
The Wall Street Journal reported on Sunday that bank worried about Greensill’s exposure to a single client, UK-based steel magnate Sanjeev Gupta, according to people familiar with the matter.
Mr. Gupta is a former shareholder of Greensill and Greensill provided funding to Mr. Gupta’s GFG Alliance group of companies, which created a metals empire by acquiring bankrupt steel mills and other struggling industrial firms.
Last month, an offer by one of Mr. Gupta’s companies to acquire the steel operations of the German company
failed after the latter company ended talks on a deal.
Last year, German banking regulator BaFin began examining links between Mr Gupta’s businesses and Greensill’s German banking unit, according to a person familiar with the investigation. The regulator was concerned that Greensill Bank was too exposed to Mr. Gupta’s activities.
Another factor in Credit Suisse’s decision to suspend funds: Greensill’s insurance policies, which offer protection in the event of asset default, have lapsed in recent days, according to some people familiar with the matter. Greensill’s business model relied heavily on such credit insurance to reassure investors that their money was safe.
A Greensill spokesperson said the company had acknowledged Credit Suisse’s move and that Greensill remained in advanced talks with potential outside investors.
Discussions are underway with Apollo. If a deal is struck, the private equity firm will seek to resume relationships with dozens of Greensill borrowers within days, including a range of blue chip companies and government agencies such as the National Health Service of Canada. UK, according to people familiar with the discussions.
Funding for these deals is believed to come from Apollo’s insurance clients, including Athene Holding Ltd., the insurance company in which Apollo has a stake, people say. Insurance clients are not interested in the assets related to Mr. Gupta, the people added.
Greensill has billed itself as a more nimble, rambling tech startup than heavy banks. It has former British Prime Minister David Cameron as an adviser. It owns a bank in Germany and performs operations closer to traditional investment banking services, such as loans to large investment projects.
In supply chain finance, Greensill competes with traditional banks such as Citigroup and JPMorgan Chase & Co. for quality customers. Some of Greensill’s premier clients include
Ford engine Co.
Greensill has also extended funding to lesser-known businesses, including small start-ups and businesses that are considered higher risk borrowers.
In a typical supply chain finance deal, Greensill pays a company’s suppliers earlier than they normally should, but at a discount. The company then pays Greensill the full amount later. The supplier gets paid sooner, the company has more cash flow flexibility, and Greensill ends up with a small profit.
It attracted capital from the giant Vision Fund of SoftBank, which invested $ 1.5 billion, which earned it a valuation of $ 4 billion. A person familiar with the Vision Fund said that it should depreciate its entire investment.
Credit Suisse decision to cut Greensill funds caps a difficult section for successful funding. Greensill’s total fundraising activity was flat last year at $ 143 billion, well below its target. Several Greensill clients have encountered financial problems, while the companies with which he has partnered have slackened.
Greensill recently tried to raise up to $ 1 billion in capital that would have valued the company at $ 7 billion. That process has stalled as the company seeks to resolve issues with its exposure to Mr. Gupta’s businesses, according to people familiar with fundraising.
This is not Greensill’s first encounter with a funds suspension. In July 2018, the Swiss asset manager
GAM Holding AG
froze a $ 12 billion fund after an inside whistleblower raised concerns about how the fund valued Greensill’s assets. These included hundreds of millions of dollars in illiquid assets linked to Mr. Gupta’s businesses.
The suspension did not stop Greensill from expanding. Following the liquidation of GAM funds, Credit Suisse funds grew rapidly, providing the startup with a new pool of investors that fueled its ability to close supply chain finance deals.
Greensill’s problems could prove painful for SoftBank. The company boosted other Vision Fund holdings with short-term financing.
Not all of these deals worked. In December, Greensill walked away from $ 435 million in start-up funding for Katerra construction, around the same time the Vision Fund invested an additional $ 200 million in it to keep it afloat. Greensill received in return an approximate 5% stake in Katerra. Last month, a spokesperson for Greensill said investors had not suffered any losses related to Katerra.
Companies owned by Vision Fund, Fair Financial Corp., a self-financing company, and View Inc., a glass manufacturer, also received funding from Greensill.
SoftBank’s multi-layered roles in Greensill have sparked controversy. In addition to investing in Greensill itself and receiving Greensill funds through its holding companies, SoftBank has invested $ 700 million in Greensill funds managed by Credit Suisse.
Last year, Credit Suisse executives raised concerns about potential conflicts of interest related to SoftBank’s roles. SoftBank finally bought back its stake in Credit Suisse funds, and Credit Suisse told investors it was “committed to taking steps to further protect them.”
For Credit Suisse, the fund suspensions are the latest setback for its asset management division. The unit, which manages around $ 480 billion, assumed an impairment charge of $ 450 million on a stake in investment manager York Capital Management after York scaled back operations, helping to push Credit Suisse to a fourth quarter loss.
Swiss financial regulator Finma said Monday it was in contact with Credit Suisse about the fund suspensions, but declined to comment further.
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