Could Greensill Be a Bigger Nightmare for SoftBank than WeWork?

(Bloomberg Opinion) -- Masayoshi Son should feel happier these days. A successful listing of one of his unicorns, South Korean e-commerce Coupang Inc., will allow him to book as much as $25 billion in paper gains this quarter. A tech rally has also propelled his SoftBank Group Corp. stock back to its dot-com era high. And, with SoftBank writing down its $6.6 billion WeWork investments last year, he has left the worst behind. Or so it seemed. 

Enter Greensill Capital, the now-defunct supply chain financier. In 2019, Softbank’s $100 billion Vision Fund invested about $1.5 billion into Greensill. That stake is now practically worthless. 

How can Greensill be an even worse nightmare than WeWork, which soaked up more than $10 billion from SoftBank and the Vision Fund? Hear me out.

WeWork was a one-off: Masa overpaid and SoftBank earnings took a hit. It’s as simple as that. Greensill’s bankruptcy, however, may snag fellow Vision Fund-backed unicorns in a broader credit crunch. And, if that happens, SoftBank’s total exposure may well be bigger than $1.5 billion.

SoftBank is Greensill’s biggest equity investor. But as part of the synergistic relationship Softbank cultivated among the companies in its portfolio, the fintech also lent to other beneficiaries of the Vision Fund such as troubled construction start-up Katerra Inc. Greensill also packaged company loans from Vision Fund companies and others  into securities, known as notes, that were purchased by Credit Suisse funds and re-sold as low-risk cash alternatives to pension funds and wealthy individuals.

A year ago, when Covid-19 hit, SoftBank put a separate $1.5 billion into those Credit Suisse funds. Greensill used the proceeds to finance Vision Fund unicorns as diverse as U.S. dynamic glass company View, Indian chain Oyo Hotels & Homes, and Chinese online car-trading platform Chehaoduo, according to the Wall Street Journal. As of late January, the Credit Suisse funds had at least $629 million in loans tied to SoftBank-backed unicorns, Bloomberg News reported. 

The unicorns financed by Greensill are among the Vision Fund’s larger investments. Katerra, View, Oyo and  Chehaoduo all received more than $1 billion in cash injections each before the pandemic. For SoftBank, they are a bit too big to fail. But they just might.

One question is why SoftBank used Greensill and Credit Suisse to lubricate the supply chain financing of its own portfolio companies. Why didn’t it fund its unicorns directly instead? Last July, SoftBank had to pull out about $700 million from the Credit Suisse funds as the bank grew wary of potential conflicts of interest. This, combined with SoftBank’s messy entanglement with failed German mobile payment Wirecard AG, raised eyebrows about its corporate governance. 

The Greensill fiasco exposes how poorly executed — and cash strapped — the Vision Fund is. The world’s largest venture capital fund began its operations in 2017; its investment period ended back in September 2019 but the fund is expected to continue nurturing unicorns all the way to 2029. In three years, its managers invested $84 billion, leaving the fund with only about $16 billion for follow-on cash infusions. 

Some unicorns will always be more troubled than others. As with Katerra, when the Vision Fund infuses more money into a company, it tends to dilute other shareholders, making the start-up ever more reliant on the fund for future capital. But that money is limited: the Vision Fund will need to preserve it all the way to 2028. As of 2020 year-end, it held 82 investments, a large majority of which were yet unlisted. 

The Greensill debacle now raises eyebrows about one of the Vision Fund’s selling points — those synergies across SoftBank’s portfolio companies. It’s been successful before. For example, SoftBank helped India’s mobile payment startup Paytm launch quickly and conquer Japan via partnerships with SoftBank’s telecom and internet subsidiary in that country. The labyrinth of unicorn collaborations, in theory, can make the Vision Fund’s portfolio stronger. But synergy could also turn into contagion. When Greensill folded, other portfolio start-ups shuddered. That’s how Greensill is worse than WeWork: It exposes the Vision Fund’s core weaknesses. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

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