(Bloomberg Opinion) -- London-based Greensill Capital is one of Britain’s most richly valued finance providers. Its Australian-born founder Lex Greensill is a billionaire on paper thanks to a big investment from Masayoshi Son’s SoftBank Vision Fund and the company is advised by former U.K. Prime Minister David Cameron.
What should be a British success story has suffered instead from a drip feed of trouble. The company is regularly in the news, often for the wrong reasons. The latest blow — Credit Suisse Group AG’s decision to freeze several supply-chain finance funds for which Greensill sourced assets — could be the most damaging yet for the firm.
Greensill’s mission is to turn corporate invoices into an investable asset class akin to money market funds. It buys invoices from companies and bundles them together into securities, which clients of Credit Suisse and other institutions can then purchase. Investors are attracted by the yield these products offer and the perception that they’re relatively low risk (the notes are short duration and are often covered by credit insurance).
But blocking redemptions from a fund in the way Credit Suisse has is obviously terrible for investor trust, especially with the Swiss bank openly doubting the value of the underlying assets.
Credit Suisse’s new Chief Executive Officer Thomas Gottstein has promised a clean slate at his company after a damaging spying scandal and various other problems. The $10 billion or so of assets Greensill sourced for the bank’s clients is a tiny fraction of Credit Suisse’s business. In short, Greensill is one problem it can do without.
Being thrown under the bus by the Swiss lender will wound Greensill, but he’s overcome similar challenges and raised fresh money from outside investors in the past. I’d expect him to try to do the same now, and pretty quickly. A financial endorsement would help soothe the fears of other clients. Greensill said it remains in “advanced talks with potential outside investors in our company.”
SoftBank might not ride to Greensill’s rescue this time. Bloomberg reported on Monday that the Vision fund has written down its $1.5 billion investment in Greensill substantially and is considering dropping the valuation close to zero. Greensill said it acknowledges the Credit Suisse decision without providing any more details.
Greensill’s latest accounts from 2019 show the company’s revenues expanding at quite a clip and a small annual profit. In theory the pandemic should have spurred further demand for supply-chain finance, which helps companies optimize their cash flows. So what’s changed?
Credit Suisse didn’t explain its decision beyond saying that “a certain part of the subfunds’ assets is currently subject to considerable uncertainties with respect to their accurate valuation.” Greensill’s financial ties to steel magnate Sanjeev Gupta may once again be at the center of its difficulties. The Wall Street Journal reported on Sunday that Credit Suisse is worried by Greensill’s exposure to that single client.
You may recall that Swiss asset manager GAM Holding AG was also forced to suspend client redemptions in 2018 after it was revealed to hold a variety of illiquid loans — some of which related to Gupta’s GFG Alliance, and which Greensill helped source. It’s not clear whether the Credit Suisse funds hold much Gupta exposure now.
Greensill managed to put the GAM saga behind it thanks to the Vision Fund’s financial endorsement. However, the SoftBank relationship has created its own set of issues for Greensill. It emerged that one of the Credit Suisse supply-chain funds held a fairly high percentage of Vision Fund assets and that SoftBank had parked cash in those funds, creating potential conflicts of interest.
There have been other problems, too. In December U.S construction firm Katerra, a Vision Fund company, narrowly avoided financial collapse and was forced to restructure its debts, including those owed to Greensill. This was the latest in a string of Greensill client defaults that raised questions about its risk management. NMC Health Plc, which collapsed after an accounting scandal, was also a client.
Greensill has said it clients didn’t incur any losses from those defaults. Credit insurers — on whom the firm depends to underwrite its invoice financing — might, however, decide to raise their rates or take their business elsewhere. Downgrading the credit rating on Greensill’s German banking arm in October, Scope Ratings warned that Greensill faced “rising insurance costs, which will have a negative impact on profitability.”
The financing firm has been trying to improve its image ahead of a possible initial public offering. The fleet of four company jets that I highlighted in a 2019 column is being sold. But getting rid of the Gulfstream is one thing: the trust of clients, regulators and ratings agencies is far more important.
Greensill hasn’t been accused of wrongdoing, but ratings agencies have said repeatedly that the accounting for its supply-chain finance is too opaque, while the German banking authorities have been probing its local banking unit over its Gupta ties. Now clients, too, have reason to be angry.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
©2021 Bloomberg L.P.