Claims war to heat up after Greensill Bank assets frozen

This post was originally published on this site

Fintech subsidiary Earnd, which owed the parent group $US2.4 million, has already been sold for an undisclosed sum and its UK operations shut down while another subsidiary, Finacity Corporation, is in the process of being sold in the US.

As part of arrangements struck when Greensill’s Australian parent bought Finacity in 2019, it would owe Finacity $US50.9 million in deferred payments over five years if specific financial targets were hit, according to its 2019 accounts.

Although the parent group is owed $US771 million by Greensill UK’s business, it will be subordinate to other secured creditors like Credit Suisse and the Peter Greensill Family Trust, so may not get any of the money back.

The assets of Greensill Bank, which had 137 employees in Germany, are estimated to be worth €3.85 billion ($6 billion) but its liabilities exceed €4 billion.

Its main business involved the purchase of receivables, including from GFG entities, from international trade finance transactions through Greensill’s UK business, which it funded with deposits from banking customers.

Advertisement

Courts in the UK as well as Australia this week issued orders giving the bank’s German administrators control over its assets. In Australia, the Germans will also get powers to interview debtors and creditors, take evidence and seize documents.

Mr Gupta’s GFG Alliance, which has stopped paying money it owes on invoices that were packaged by Greensill and held in Credit Suisse’s supply chain finance funds, has reassured suppliers to the Whyalla steelworks and other businesses that legal action initiated by Credit Suisse in Australia would likely take months to be resolved, and in the meantime it was business as usual.

A letter to suppliers on April 7 from Paramjit Kahlon, who was appointed chief executive of GFG’s global steelmaking and integrated mining division last year, outlined the company’s position.

“We will be defending our position in court and anticipate it will take many months to play out, by which time we are confident of having our refinancing activity completed,” Mr Kahlon’s letter said.

He said GFG “is in constructive discussions with Grant Thornton, Greensill’s administrators, and other stakeholders to negotiate a consensual and amicable solution on the way forward, which is in the best interests of all stakeholders”.

Advertisement

Mr Kahlon reinforced that GFG’s Australian businesses were in solid shape financially. The stable of steelworks he oversees includes European operations.

“The Australian businesses are performing well and generating positive cash flow, supported by the operational improvements we’ve made and strong steel and iron ore markets,” he said.

The steel businesses were “committed to servicing our customers and meeting our contractual obligations,” Mr Kahlon said.

Federal finance minister Simon Birmingham said the government had not received any applications to sell off the steelworks and that it would not be in the interests of Whyalla or the nation “to see those different assets broken up and sold separately, as a whole they provide for a more profitable business.”

Mr Gupta has hit out at media reports questioning the veracity of invoices reportedly issued by GFG, telling the UK’s Financial Times in a letter to the editor that many of Greensill’s financing arrangements with clients, including some of the companies in his business empire, were “prospective receivables” programmes.

“As part of those programmes, Greensill selected and approved companies with whom its counterparties could potentially do business in the future,” Mr Gupta said in the letter.

Advertisement

“Greensill then determined, at its discretion, the amount of each prospective receivables purchase and its maturity.”

Financing future receivables – or borrowing from the future to fund current operations – is unusual in the global supply chain finance industry, with some participants describing it as “financing vapor.”

“Having been in the business of financing the business-to-business supply chain for many years, both domestically and internationally, I have never come across ‘prospective receivable financing,’” said Clive Isenberg, director of Octet, a Sydney-based trade finance group.

“This would cover the period from when I started Scottish Pacific Business Finance in the mid 1980s to Octet Finance in the 2000s.”

One supply chain finance provider said Greensill appeared to have spotted an opportunity “where the banks don’t play” and questioned whether its investors and insurers had been aware the firm was financing future accounts receivables.

Other companies said they expected accounting regulators internationally to impose tougher standards on how companies disclose their use of supply chain finance.

Dru Shiner, chief sales officer at Kansas-headquartered fintech group C2FO, which provides technology to companies that want to offer early payment of invoices at a discount, said reducing ambiguity in the industry would create “much needed transparency and stability.”

“We believe that a framework where regulators, corporations, suppliers and providers are engaging with one another can make a material, positive impact and ensure the best options for businesses of all sizes,” Mr Shiner said.

Related Posts