Greensill Capital, the UK-based supply-chain finance company, will see Softbank’s Vision Fund top up its existing $800 million stake by another ‘few hundred million’. It also confirms founder Lex Greensill, a former banker with Morgan Stanley and Citigroup as well as a senior advisor to David Cameron’s government, into an ‘on-paper billionaire’. Greensill Capital, founded in 2011, is also now one of the UK’s most valuable financial services start-ups. The original $800 million invested into Greensill by the Vision Fund back in May was at a valuation of $3.5 billion. It is unclear at what valuation the new investment will be made but the presumption will be at an even higher price-point.
Greensill’s core business is in helping companies raise debt finance backed by their payments to suppliers. However, the financial instruments that Greensill specialises in are controversial. Its esoteric bonds were last year mixed up in the corporate governance scandal that engulfed Swiss fund manager GAM. GAM’s flagship bonds funds were highly exposed to illiquid debt instruments created by Greensill to back the expansion of British steel magnet Sanjeev Gupta’s aggressive acquisition-based expansion.
One structure Greensill is particularly well-known for is called “reverse factoring”. This involves financial institutions paying a company’s suppliers early. This secures discounts while still allowing companies to manage large payments by spreading them out. However, it is also a technique that has been widely criticised as allowing companies conceal mounting debts off-balance-sheet. Spanish energy company Abengoa was financed by Greensill in this way before it filed for bankruptcy protection four years ago. Reverse factoring was also heavily implicated in the collapse of Carillion, the British outsourcing company. Moody’s has pointed the finger at reverse factoring for cloaking hidden risks and as a loophole to usual disclosure requirements.
The Vision Fund, however, is clearly a fan of Greensill Capital’s business model. Following its first investment in the company in May it also headed a $200 million investment round raised by US supply-chain finance company C2FO. While theoretically a technology-focused fund, the biggest in the world, the Vision Fund has now made several major investments into finance companies. Among them is a significant stake in OakNorth Bank, another UK-based fintech that makes loans to SMEs and finances property development projects.