Illustration by Isabel Ríos.

Falcon Finance: The Curious Case of Greensill Capital

Is supply chain financing sound? This arcane branch of finance has recently seen a surge in interest since supply chain financing giant Greensill Capital went bust. What went wrong with Greensill Capital? Here’s a deeper look.

Mar 28, 2021

In the midst of the pandemonium caused by Covid-19, an uproarious scandal appeared in the financial world as a high-profile supply chain financial services company, Greensill Capital, filed for insolvency.
But first, what’s so special about Greensill Capital? Greensill Capital is a financial services company that provides backing to supply chains. It was founded by Lex Greensill, an Australian businessman and banker and has ties with many corporate names such as J.P. Morgan and SoftBank, as well as high profile figures such as the former U.K. Prime Minister David Cameron, who served as an adviser.
Founded in 2011, it touted an impressive $7 billion in projected market value last October. This impressive run started humbly from the vision of young Lex Greensill, whose parents owned a farming business. Business was extremely turbulent and unstable as payments were late all the time, causing disruptions in their production and livelihood — which denied Greensill the chance to go to college. Greensill moved to the U.K. in 2001 to join J.P. Morgan, where he thrived in the supply chain finance sector of the company. Ten years later, he made a name for himself by establishing the titular company using the knowledge he had accumulated from the sector. His rising profile later landed him the role of financial adviser for Former Prime Minister of U.K., David Cameron.
Greensill's story became more and more complex as his company grew alongside his reputation. Today, Greensill and his family are the main shareholders of the company and the main bearers of the brunt of the Greensill Capital collapse.
“From its U.K. foundations, Greensill has taken on the world, upending traditional financing models and democratising capital to give businesses, including many SMEs and small traders, access to low-cost funding,” said David Cameron on Greensill Capital.
Indeed, Greensill Capital seems to be the company that will revolutionize the way funds are allocated between customers, manufacturers and suppliers. Payments typically arrive to suppliers from 90 to 120 days after they deliver their goods. This gap typically is due to the fact that manufacturers tend to hold their bills for as long as possible in order to maximize their capital. Small suppliers cannot afford to wait this long as their working capital is very limited.
Greensill Capital’s solution is to pay the suppliers in place of the manufacturers, issuing an invoice to the manufacturers with the amount they have to pay back with interest once they receive payments from customers. As a result, the suppliers would get their payment upfront to continue their production while manufacturers would be able to work more flexibly with more capital and the lender — in this case Greensill Capital — would benefit from the extra interest rate. In theory, since these borrowings are short term, they can be said to be low risk. But as risk is inherent in every financial practice and is further complicated the more it grows in size, supply chain financing is anything but low risk.
Greensill Capital is a prime example of how supply chain financing can become more complex than it seems. The fall of Greensill Capital can be attributed to two sets of events that occurred last year.
First, Germany’s Financial Regulator BaFin became suspicious of Greensill Capital’s finances. They asked Greensill Capital to reduce their exposure to the Gupta Family Group — or GFG — Alliance. Exposure is the amount of money at risk that Greensill Capital could lose if the GFG defaulted on their payment. Helmed by Sanjeev Gupta, the GFG is a British conglomerate primarily involved in the steel business. Gupta, often known as the “Savior of Steel,” is an investor in and the largest client of Greensill Capital. The GFG Alliance accounted for over half of Greensill’s business and this overdependence made BaFin wary. The overexposure led to an audit which found Greensill guilty of balance sheet manipulation.
Secondly, in order to make the process of supply chain financing more foolproof, Greensill took insurance coverage from The Bond & Credit Co. in Australia. This meant that if any client of Greensill defaulted on a payment, the insurance company would bear the brunt. This strategic move made investing in Greensill all the more lucrative. However, last July, Tokio Marine & Nichido Fire Insurance, owner of The Bond & Credit Co. in Australia, decided to suspend its insurance coverage for Greensill.
In order to pay the supplier before the stipulated time period, Greensill needed the backing of a financier. Credit Suisse took on this role and provided Greensill with a $10 billion fund. Greensill would use this fund from investors to pay off suppliers immediately. It would then work with the manufacturer and subsequently secure their payment. The lapse of insurance coverage meant that investing in Greensill became riskier, leading to Credit Suisse suspending its funding. Upon the suspension of funding, Greensill no longer had capital to pay suppliers immediately. This move choked Greensill’s business operations and made its downfall inevitable.
The ripple effect of Greensill’s collapse is significant. The bankruptcy of Greensill has raised questions about the GFG Alliance itself. Greensill claims that Gupta and his group are experiencing “financial difficulty” as they default on debt. Financial trouble for the GFG Alliance puts their 5,000 employees at risk. This has worried union leaders in the U.K. and they have initiated conversations with GFG and the U.K. government. Even more, David Cameron’s role during his prime ministerial tenure is also being questioned.
As Greensill filed for bankruptcy, it was in talks with Private Equity firm Global Management Inc. to sell a certain part of their business. This deal, however, fell apart which left Greensill even more vulnerable. The administrators of the bankrupt firm are now desperately trying to sell any tangible assets in a desperate effort to recover some losses.The success of this plan, however, seems unlikely.
The fall of Greensill Capital raises larger questions about the efficacy of supply chain financing as a whole. Moreover, it makes it apparent that over-exposure to a single client is a recipe for disaster. While Greensill is small and cannot lead to a systematic collapse of the financial markets, its fall is definitely socially, politically and strategically important.
Manav Mody and Nghĩa Trí Nìm are Finance Columnists. Email them at
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