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Lex Greensill fights to save empire

Jenny WigginsInfrastructure reporter
Updated

Billionaire Australian Lex Greensill is fighting to save his empire from collapsing after one of his biggest customers, Credit Suisse, blocked a big chunk of his cash flows by halting purchases of Greensill Capital’s packaged invoices.

Greensill, which has hired restructuring adviser Grant Thornton, is considering options to raise cash, including selling off assets, and will seek the protection of safe harbour laws in Australia if it ends up falling into administration.

Lex Greensill speaking at The Australian Financial Review Business Summit in Sydney last year. Peter Braig

Greensill’s British business, which is the main trading entity, is a wholly owned subsidiary of Greensill Capital Pty Limited, which is registered in Queensland and controlled by Mr Greensill, who is the group chief executive.

The financial crisis comes after British-based Credit Suisse Asset Management said it had frozen all redemptions and subscriptions in four funds worth about $US10 billion ($12.9 billion) that buy billions of dollars of supply chain finance securities packaged by Greensill to protect investors.

This essentially means there will be no new investment into the funds, which have not lost money, and investors cannot get their money out for the time being.

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Credit Suisse is understood to be concerned about the rising level of noise surrounding Greensill over the past two years and its fiduciary duty to investors.

This includes Greensill’s financial exposure to British billionaire Sanjeev Gupta’s GFG Alliance, which owns steel, aluminium and iron ore mining businesses, and operates the Whyalla steelworks in South Australia.

Financial exposure

Greensill has provided funding to GFG through Greensill Bank, a German lender it bought in 2014. The Financial Times reported in February that Germany’s banking regulator, BaFin, had been putting pressure on Greensill Bank to reduce its financial exposure to Mr Gupta’s companies.

In addition, some of Greensill’s insurance on its packaged securities, which protects Credit Suisse’s investors in the event of defaults, expired on Monday.

Credit Suisse said the funds’ assets were “subject to considerable uncertainties with respect to their accurate valuation” and that it had suspended the calculation of the net asset value per share as well as the issuance, redemption and conversion of shares from or into funds from March 1.

A Greensill spokesman acknowledged the move by Credit Suisse to “temporarily gate” supply chain finance funds dealing in Greensill-sourced assets, which raises its cost of financing.

“We remain in advanced talks with potential outside investors in our company and hope to be able to update further on that process imminently,” the spokesman said.

The Australian Financial Review has confirmed with a senior source close to the company that it will take advantage of Australian insolvency laws passed in 2017 that allow directors to try to restructure companies while potentially trading insolvent without being liable for civil or criminal penalties.

Greensill, which was founded by Queensland-born and raised Mr Greensill in 2011 and claims to do about $US143 billion in financing deals annually, declined to comment.

‘Categorically untrue’

Mr Greensill told the Financial Review’s Street Talk column on Sunday that it was “categorically untrue” that the financial group was “in any sort of safe harbour position”.

Greensill, which has been trying to attract equity investors in Australia and overseas by touting plans for a potential future public listing, is understood to be considering a range of restructuring options.

The British media have reported that it has been trying to raise cash by selling its operating business to US private equity group Apollo Global Management.

Greensill makes money by acquiring invoices from the suppliers of its customers for a fee (a process known as supply chain finance or “reverse factoring”) and packaging them into short-dated bonds that are then sold to investors such as banks and pension funds.

In 2019, Greensill transferred $US38.4 billion of financial assets to sponsored structured entities, according to its most recently available financial statements.

It has sold billions of dollars of these packaged supply chain finance securities over the past few years to Credit Suisse, which in turn sells them to investors.

But over the past few years, several of Greensill’s supply chain finance clients have collapsed, including Abu Dhabi-based NMC Health, Singapore’s Agritrade and Britain’s BrightHouse – all of which were held in funds managed by Credit Suisse. Investors in the funds did not lose money because the securities were insured.

Greensill is exposed to a “first loss” on any defaults under its insurance policies. Its maximum exposure to potential losses under insurance policies in 2019 was $US1.04 billion. But it took provisions for only $59.3 million of potential losses.

Greensill has previously run into strife with other investment partners. In 2018, Swiss investment manager GAM liquidated its investments in the GAM Greensill Supply Chain Finance Fund (based in Luxembourg), which contained securities linked to Mr Gupta’s companies and financed by Greensill.

Greensill has been expanding aggressively since receiving $1.46 billion of funding from Japan’s SoftBank Group in 2019, using the money to move into new markets, including the Middle East and China.

It hired high-profile advisers, including former foreign minister Julie Bishop who joined as a senior adviser in December 2019 and was named chairman of its Asia-Pacific business. Former British prime minister David Cameron is also a senior adviser.

Greensill also made acquisitions, including Finacity Corporation, a US financing group that specialises in securitisation, and Earnd Ltd, a British early payment app.

In Australia, one of Greensill’s biggest supply chain finance clients has been construction group CIMIC, which used Greensill’s services to delay paying suppliers’ bills; its other clients have included Telstra.

CIMIC and Greensill are in the process of severing their relationship following scrutiny by the Financial Review and regulators.

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Summary | 11 Annotations
Lex Greensill
2021/03/02 20:38
Credit Suisse Asset Management
2021/03/02 20:39
Australian insolvency laws passed in 2017 that allow directors to try to restructure companies while potentially trading insolvent without being liable for civil or criminal penalties.
2021/03/02 20:42
categorically untrue
2021/03/02 20:43
Greensill makes money by acquiring invoices from the suppliers of its customers for a fee
2021/03/02 20:43
packaging them into short-dated bonds that are then sold to investors such as banks and pension funds.
2021/03/02 20:45
SoftBank Group in 2019
2021/03/02 20:47
Julie Bishop
2021/03/02 20:48
David Cameron is also a senior adviser.
2021/03/02 20:48
construction group CIMIC
2021/03/02 20:48
Telstra
2021/03/02 20:48