Greensill Capital demise could affect Telstra, CIMIC, Whyalla Steelworks as fallout continues | Alds

But the local blue-chip firms on the hook for tens of millions of dollars worth of unpaid invoices have insisted it’s business as usual, distancing themselves from the Greensill operation and stressing there is no danger to their suppliers, or risk that they will not pay their bills.

“There is no financial risk to Telstra, or our suppliers, from this situation,” a Telstra spokesman said. A CIMIC spokeswoman declined to comment but it’s understood there is no risk to its suppliers.

Greensill Capital spectacularly imploded last week after Swiss bank Credit Suisse froze four investment funds that had purchased $US10 billion ($A13 billion) worth of the troubled lender’s debt packages.

The bombshell move – triggered by a lapse in insurance policies covering some $US4.6 billion ($A6 billion) in assets – kicked off an explosive chain of events that now sees the 44-year-old scrambling to sell off “large parts” of the business to US private equity firm Apollo Global Management, after which the company will reportedly file for insolvency.

As the Bundaberg farmer now faces a media, political and regulatory firestorm digging into how the wheels fell off, attention has turned to the former clients whose IOUs could soon be in the hands of banks and insurers chasing payment.

Lawyers for Greensills told the NSW Supreme Court last month that, should the firm’s insurers refuse to extend coverage past March 1, more than 50,000 jobs could be at risk, including more than 7000 in Australia.

Credit Suisse on Friday announced that it would be liquidating its four supply chain finance funds and would return the money to around 1000 investors, starting this week with about $US3.7 billion ($A4.8 billion) in cash and equivalents.

Greensill’s business model involved effectively lending money to large companies like Telstra by paying their bills to suppliers early in exchange for a discount, and then collecting the full amount from Telstra at an agreed point in the future.

But Greensill put a further twist on the model by taking those payment agreements with its clients, chopping them up and packaging them into financial products which it sold to Credit Suisse and fellow Swiss asset manager GAM Holding.

The investment banks purchased Greensill’s “securitised” debt packages and in turn sold them to pensions, rich clients and others desperately seeking yield in a low-interest rate environment.

This was Greensill’s main source of funding.

Greensill purchased some $A143 billion worth of invoices from suppliers last year.

The Australian Financial Review reported on Monday that Telstra-backed receivables accounted for 3.09 per cent of the $US300 million ($A390 million) in assets in Credit Suisse’s “investment grade” supply chain finance fund as of January 29.

Meanwhile, its “high income” fund with $US1.6 billion ($A2.08 billion) in assets listed CIMIC subsidiaries Leighton Contractors Asia and CPB Contractors together at just under 4 per cent of the total, while the Australian Rail Track Corporation accounted for 1.9 per cent, according to The Australian Financial Review.

The ARTC is an Australian government-owned corporation that oversees the country’s railway line infrastructure. South Australia’s Whyalla steelworks, which is owned by British industrialist Sanjeev Gupta’s GFG Alliance, is a major supplier of railway tracks to the ARTC, the newspaper notes.

WHYALLA WIPEOUT?

Mr Gupta purchased the Whyalla steelworks in 2017 after owner Arrium collapsed. It now employs some 6600 Australians and is the economic backbone of South Australia’s fourth-largest town.

Mr Greensill’s extensive entanglements with GFG Alliance was reportedly a key factor driving the events that led to last week’s rush for the exits, with insurers and investors growing concerned too many of Greensill’s eggs were in the Gupta basket of companies.

The Financial Times reported that up to half of the €3.5 billion ($A5.4 billion) worth of assets on the balance sheet of its Germany-based subsidiary Greensill Bank might be tied to GFG Alliance.

Germany’s financial regulator BaFin last week froze the operations of Greensill Bank citing an “imminent risk” of over-indebtedness and expressing concern over alleged accounting irregularities, including in dealings with GFG Alliance.

“During a special forensic audit, BaFin found that Greensill Bank AG was unable to provide evidence of the existence of receivables in its balance sheet that it had purchased from the GFG Alliance Group,” said BaFin, which has also filed a criminal complaint against the bank’s management for alleged balance sheet manipulation.

The close relationship between the pair now appears to be fractured, with reports last week that Mr Gupta’s GFG Alliance was cutting off payments to Greensill and lawyering up in London ahead of a likely mammoth claims battle.

Despite one of its key lenders facing insolvency, GFG Alliance has moved to calm fears over the future of the Whyalla steelworks.

“GFG Alliance has adequate current funds and its plans to bring in fresh capital through refinancing are progressing well,” a company spokesperson told the ABC over the weekend.

“Our global efficiency drive means that our core businesses are operationally strong and improving. We are benefiting from a recovery in steel and aluminium markets, which means that most of our businesses are running at near full capacity to meet high demand and are generating positive cash flows.”

‘NO FINANCIAL RISK’

A number of Greensill’s clients have been gradually weaning themselves off supply chain finance since last year, when the practice came under fire from the Small Business Ombudsman.

After accusations that companies like CIMIC were using supplier payday lending schemes to push out their repayment terms, Mr Greensill was forced to step in and vow to dump any client that went beyond 30 days.

While CIMIC declined to comment, the company has wound back its supply chain finance balance by around $700 million since last May, to $144 million at the end of December.

Telstra has some $98 million outstanding. The company has been transitioning away from supply chain finance for the past 12 months but did not completely switch off the option in its supplier payment portal until last week.

The telco – which expects to have brought that balance down to zero by the time it next reports to market in August – recently moved to 20-day payment terms for 80 per cent of its suppliers, effectively eliminating the need for Greensill.

The cash-rich company insists it will have no issues paying its bills, regardless of who ultimately comes knocking.

“There is no financial risk to Telstra, or our suppliers, from this situation. Suppliers’ invoices submitted to Telstra have been, and will continue to be, paid by their due date,” a spokesman said.

“We no longer offer our suppliers the option of supply chain financing. We continue to work with our suppliers to ensure their invoicing to us is up to date and they have the funds they need when they need them.”

An ARTC spokesman said, “The Australian Rail Track Corporation has no direct exposure to Greensill Capital and does not use any of Greensill’s supply chain financing invoice payment services. It is ARTC’s understanding that it has been named in the (Australian Financial Review) report as one of our suppliers has factored our receivable.”

frank.chung@news.com.au