Financial services firm Greensill Capital has filed for administration, putting more than 5,000 jobs at risk at Liberty Steel and other firms across the UK.
Greensill Capital, founded in 2011, specialised in the provision of supply chain financing and other financial services.
Liberty Steel operates 12 plants across the UK including in Rotherham, Motherwell, Stocksbridge, Newport and Hartlepool. More than 3,000 employees work at these plants, with a further 2,000 within its supply chain.
Just last week, professional services giant Grant Thornton was appointed to manage the insolvency, and on March 2, Greensill Capital announced that it was considering selling the operating part of its business to Apollo Global Management or Athene Holdings.
Greensill Capital was the main lender to prominent entrepreneur Sanjeev Gupta’s business empire.
Prior to today’s announcement, Gupta was hailed as the UK’s ‘Saviour of Steel’, however, reports of financial difficulties have surrounded his empire in recent weeks. Gupta has not commented on these.
Following the announcement, union officials held talks with Gupta. A union statement read: “Sanjeev Gupta needs to tell us exactly what the administration means for Liberty’s UK businesses and how he plans to protect jobs. The future of Liberty’s strategic steel assets must be secured and we are ready to work with all stakeholders to find a solution.”
Chris Laverty, Trevor O’Sullivan and Will Stagg had been appointed as joint administrators of Greensill Capital and Greensill Capital Management Company. They said: “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.”
The collapse of Greensill Capital has sent shockwaves through financial and industrial circles in the UK. Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown shares her view on the current situation.
The collapse of Greensill Capital is sending ripples of panic through financial and industrial circles who were dependent on its supply chain funding and investment opportunities it provided. For companies reliant on its factoring service, the great scramble has begun to find other ways of covering the looming cavern in their finances. Those investors who had bought the debt sold on the market are now staring at potentially big losses.
The writing was on the wall for Greensill Capital after its lost its credit insurance for the $4 billion short term debt it had taken on for its array of customers around the world, from Australian construction and telecoms companies to the international steel business GFG Alliance, which owns the Liberty Steel group. GFG says it will find new channels of finance but it’s by no means a certainty, putting thousands of jobs at risk in its sprawling steel empire.
Greensill had put a shadow banking spin on the traditional business practice of factoring, where suppliers sell at a discount debts their customers owe to them to a third party who collects the full amount when its due.
Greensill chopped up and repackaged that debt and sold it on the financial markets at a huge scale. But there was a flaw at the heart of the global operation. Greensill was hugely reliant on insurer providing cover for that debt, and its withdrawal set in motion the slow financial train wreck of the past week.
The crisis is like a microcosm of the securitised mortgage debt house of cards which triggered the financial crisis in 2008. Now questions will be asked about why Greensill’s business partners stayed so reliant on the firm even after a number of warning lights began flashing. The number of clients defaulting on their debts began piling up last May, as it emerged it had provided funding for collapsed firms Brighthouse and NMC Health, which was the centre of an accounting scandal. It also emerged Sanjeev Gupta, owner of GFG alliance, which was Greensill’s largest client, had also been a shareholder in Greensill.
Softbank’s role in particular is likely to come under scrutiny. Its backing of Greensill is yet another high profile investment, made by the Japanese conglomerate which has which has turned sour. Its Vision fund had already ploughed billions of dollars into a series of disappointing start-ups, not least We Work which was forced to cancel its IPO.