Finance house Greensill Capital has lost Telstra and CIMIC’s UGL as key clients with both major companies in the process of exiting their relationship with the Anglo-Australian supply chain finance group which is now teetering on the brink of collapse.
London-headquartered Greensill has sought key insolvency protections, known as “safe harbour protections”, in Australia to allow it to continue to trade in the event it is insolvent while protecting its directors from criminal liability. Grant Thornton is advising the group.
Lex Greensill’s supply chain finance business had been planning an initial public offering. Credit:
Greensill was left scrambling on Monday night after its financial backer Credit Suisse froze billions of dollars of funds the supply chain finance group had relied on as buyers of the debt securities it issues.
Greensill provides a service that allows suppliers to big companies to be paid earlier for a fee. These financing arrangements are then packaged up and rolled into securities that are sold by Credit Suisse.
Founded by Australian Lex Greensill in Bundaberg in 2011, Greensill has grown into being one of the biggest supply chain financiers in the world and has been lauded as one of Australia’s great exports. It was planning a massive initial public offering possibly this year.
But in recent months clients have been able to more easily access cheap credit, thus removing the need for supply chain financiers.
Telstra is in the process of exiting its business relationship with Greensill and moving away from supply chain finance. Last year, the telecommunications giant committed to 20-day payment for suppliers doing business with it worth $2 million or less. The telco has individual payment time arrangements for larger suppliers.
A Telstra spokesman confirmed the group had dropped the vast amount of its supply chain financing arrangements. “We announced that we would exit supply chain financing by the end of this financial year and nearly all of our suppliers have now transitioned away from using this option already.
“As of December 31, 2020 a small number of suppliers had chosen to continue to access supply chain financing for $98 million worth of invoices.”
Meanwhile, UGL is in the process of severing its relationship with Greensill having dramatically reduced its business with the firm in recent months. UGL was criticised heavily for its use of supply chain finance with its suppliers and has in the past year under the new leadership of Juan Santamaria been working to keep to regular payment times.
Credit Suisse wrote to investors in the funds on Monday night indicating the problems stemmed from over-exposure to a single client of Greensill’s, widely believed to be various entities associated with billionaire steel tycoon Sanjeev Gupta, who owns an array of assets around the world, including the Wyalla steel mill. Mr Gupta’s company GFG Alliance declined to comment when contacted by The Age and The Sydney Morning Herald.
A spokesman said the company acknowledged the decision by Credit Suisse to “temporarily” freeze the supply chain finance funds dealing with Greensill-sourced assets. “We remain in advanced talks with potential outside investors in our company and hope to be able to update further on that process imminently.”
Greensill’s controversial backer SoftBank has written down the value of its stake in Greensill by $US1.5 billion ($1.9 billion). Bloomberg reported it was likely it would write its stake down to zero.
Greensill has had a rough few years with a number of offshore clients collapsing while its major local customers gave up on the program of supply chain finance after complaints they were using the products unfairly.
Last May, Greensill was hit with a string of defaults by offshore customers that potentially exposed the group to losses.
Business Briefing
Start the day with major stories, exclusive coverage and expert opinion from our leading business journalists delivered to your inbox. Sign up here.
Most Viewed in Business
Source: Read Full Article