Greensill Capital is preparing to file for insolvency in the UK, capping a spectacular unravelling for the finance company backed by SoftBank and advised by former prime minister David Cameron.
The planned filing comes as US private equity firm Apollo Global Management races to strike a deal to buy the most attractive parts of Greensill, one of the world’s biggest providers of supply chain finance, according to people familiar with the matter.
A deal with Apollo would be likely to wipe out Greensill’s shareholders such as SoftBank’s Vision Fund. The Japanese conglomerate’s $100bn technology fund poured $1.5bn into the business in 2019, but has already substantially written down the value of its stake.
Lawyers for Greensill warned this week that the recent loss of a $4.6bn insurance contract could cause a wave of defaults among its clients and 50,000 job losses. It said that some of these clients were “likely to become insolvent, defaulting on their existing facilities”, as their funding for working capital was removed.
Founded by former banker Lex Greensill a decade ago, the firm has mushroomed into a major player in supply chain finance, which helps companies raise money from their customer and supplier invoices. However, its main financial product is controversial, as critics have said it can be used to disguise mounting corporate borrowings.
Apollo’s deal, if agreed, would effectively rescue these clients who would be left stranded by Greensill’s demise.
Greensill and Apollo declined to comment.
The $455bn US investment group and its insurance affiliates, which include Athene, could take on many of these supply chain financing contracts with blue-chip companies, potentially worth billions of dollars, according to two people with knowledge of the matter.
When nervous lenders withdraw these facilities from heavily indebted companies, it can create an effect similar to a bank-run on their working capital position. This type of unravelling was central to the 2018 collapse of UK contractor Carillion, which drew heavily on a government supply-chain finance scheme.
Apollo’s rescue deal is likely to exclude financing lines related to metals magnate Sanjeev Gupta, however, the UK industrialist whose businesses have borrowed heavily from Greensill in recent years.
A spokesman for Gupta’s GFG Alliance told the FT on Tuesday that the group “has adequate funding for its current needs and its refinancing plans to broaden its capital base and obtain longer term funding are progressing well”.
Apollo and its affiliated groups could carve out Greensill’s operating business and take on hundreds of its staff, the people said. However, they cautioned, it had not been finalised and details may change.
While the bulk of Greensill’s business is based in London, its parent company is registered in the Australian city of Bundaberg, the hometown of its founder Greensill, where the company is seeking relief from insolvency laws.
Greensill has a banking subsidiary in Germany, which the Financial Times revealed on Tuesday has fallen under the control of financial watchdog BaFin.
A 44-year-old former banker from Australia, Greensill cemented his status as a paper billionaire when SoftBank’s Vision Fund invested in his firm in 2019. The year after founding his eponymous company in 2011, he acted as an adviser to then prime minister Cameron and helped set up the government supply-chain finance scheme.
MPs investigating the collapse of Carillion said this scheme allowed it to “prop up its failing business model”.
Credit: Financial Times