THE AUSTRALIAN operations of Greensill Capital officially ceased at 5pm on Monday, raising questions about impacts to Australian agricultural companies which accessed supply chain finance through firm.
Parent company Greensill Capital filed for insolvency in the United Kingdom last week after a failure to secure ongoing insurance coverage for its global supply chain financing business and concerns over its asset valuations led to major partners including Credit Suisse withdrawing funding support. Corporate insolvency firm Grant Thornton was appointed as administrators of the UK and Australian based businesses last week.
Agricultural industry sources familiar with the company’s operations have said that while a range of large Australian businesses in the grain and beef sectors accessed supply chain finance through the firm and will now be affected by the loss of those arrangements, it seemed “unlikely” the collapse of Greensill Capital would precipitate the closure of any agricultural entities doing business with the firm.
Greensill Capital had spent the past week in talks to sell its operating business to investment firm Apollo, but that deal fell over on Friday night.
Staff members of Greensill Capital in the UK and Greensill Australia were subsequently issued with retrenchment notices on yesterday.
As of yesterday morning the company was not answering its phones and emails were being referred to Grant Thorton. All previous content that had been posted on the Greensill website has now been removed and replaced with a single statement from the administrators, which says in part:
The Joint Administrators are in continued discussion with an interested party in relation to the purchase of certain Greensill Capital assets. As these discussions remain ongoing, it would be inappropriate to comment further at this time. If you have any queries, please contact the Joint Administrators and their team at [email protected]
Following these appointments, the directors of Greensill Capital Pty Ltd resolved to appoint Matt Byrnes, Phil Campbell-Wilson, and Michael McCann of Grant Thornton Australia Ltd, as voluntary administrators in Australia. Greensill Capital Pty is the parent company for the Greensill Group, and provides administration and head office support to the Group but operates only in a limited capacity.”
Supply Chain Finance
The firm specialised in providing a form of finance known as supply chain finance.
Mr Greensill was motivated to find ways to use supply chain financing to help farmers access faster payments after watching his parents wait up to two years to be paid for produce delivered to large supermarkets.
In simple terms supply chain finance is a practice that can be used to help small and medium sized enterprises that supply products to large companies to get paid faster.
The trade-off is that they accept slightly smaller payment to access cash immediately rather than waiting weeks or months to be paid what they are owed in full.
An example would be a farmer selling $100,000 worth of cattle to a large supermarket.
The large supermarket may not pay the farmer for 120 days. A supply chain financier will offer the farmer an immediate cash payment of, say $95,000, which gives the farmer the benefit of immediate cash flow. The supply chain financier then collects the $100,000 in full from the supermarket when the invoice is paid 120 days later, making $5000 on the transaction.
Supply chain financing has existed as a means of helping smaller companies to improve their cash flow situation for centuries.
Pushed ‘beyond what was safe’
The particular funding model that Mr Greensill built added some layers of complexity to the simple transaction mentioned above.
His business converted each transaction into notes and then issued bonds, which gave the firm access to far bigger pools of funding than would otherwise be available from dealing with an individual bank. Greensill used the capital sourced from bond markets to provide supply chain finance to small and medium sized enterprises.
The company relied heavily on insurance as part of its business model to protect it against defaults.
Mainstream media reporting of the company’s collapse suggests it pushed “beyond what was safe” in supply chain financing, and its heavy exposure in providing “bigger, riskier loans” to a small group borrowers, not all of whom were considered to be “investment grade” borrowers, ultimately spooked insurers and funders and led to the firm’s very sudden collapse when insurance coverage expired and could not be renewed on March 1.
Whether the firm’s collapse will affect the third-generation Bundaberg cane and cropping operation Greensill Farming, which has expanded rapidly to more than 4000 hectares in recent years, employing hundreds of workers and contractors, is not yet clear.
Brothers Lex, Peter and Andrew Greensill are joint shareholders in Greensill Farming.
Peter, managing director Greensill Farming, made public comments last week stating that the farms are operated separately from Greensill Capital, and provided assurances to Bundaberg Mayor Jack Dempsey that the Greensill Farming business would continue uninterrupted.
Australian ag businesses affected
While it is believed the bulk of Greensill Australia’s supply chain financing business in Australia was focused on the commercial sector, in 2019 Greensill Australia created a division comprising largely ex-Rabobank agribusiness bankers to grow the firm’s supply chain financing business into the agriculture sector.
Grain Central understands the firm was successful in attracting customers across a wide range of agricultural industries, predominantly in the grain, beef and cattle lot feeding sectors, and was also beginning to make inroads into other intensive commodity areas such as poultry.
Industry contacts understood to be familiar with the company’s Australian operations have told Grain Central that a range of agricultural businesses which accessed supply chain finance via Greensill Australia will be disadvantaged by the loss of those early cash-flow generating arrangements.
But one source said he believed most would “have a plan B in place” and expressed doubt that the termination of Greensill Australia’s business would lead to the closure of any agricultural entities accessing supply chain financing through it.
More details are likely to be revealed following a Greensill creditors meeting which is due to be held this Friday.
One said companies accessing supply chain finance saw traditional banking systems “as too slow to move” and did not want to be constrained by a lack of access to cash and capital that remains a problem across the agricultural sector.
Whether parts of the supply chain business operated by Greensill Australia will be picked up and continued by other financiers or businesses going forward remains to be seen.
Attempts to contact Greensill Australia by Beef Central were met with messages referring any inquiries to receiver Grant Thornton.
Grant Thornton did not respond prior to the publication of this article.