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How Masayoshi Son’s ‘Cash Man’ Lex Greensill Went From Hero to Zero

(Bloomberg) — In February 2020, SoftBank Group Corp.’s Masayoshi Son visited Indonesia, providing to take a position billions of {dollars} towards the event of a brand new capital metropolis. Lex Greensill, on the time a favourite of Son’s, was a part of the entourage.SoftBank had invested $1.5 billion in Greensill’s eponymous finance firm, however in a gathering with Indonesian president Joko Widodo, Son launched Greensill because the “cash man,” in response to native TV footage.One 12 months later, the cash man has change into a cash pit. Greensill Capital collapsed in March in some of the spectacular monetary blow-ups of latest years, sending shock waves by way of a Swiss banking large, two of Japan’s largest corporations and a British tycoon’s industrial empire.Son has needed to write down his funding, making it among the many worst within the historical past of his Imaginative and prescient Fund, alongside the implosion of WeWork Cos., one other SoftBank portfolio firm. That’s unlikely to forestall SoftBank from posting its strongest quarter on document, together with a revenue of greater than $30 billion on the Imaginative and prescient Fund, because of the IPO of South Korean e-commerce agency Coupang Inc. and a hovering valuation of Chinese language ride-hailing startup Didi Chuxing Expertise Co., in response to folks with information of the matter. Nonetheless, the episode underscores the dangers of Son’s technique of taking massive fairness stakes in startups after which encouraging these portfolio firms to collaborate with one another.Spokespersons for SoftBank Group in Tokyo and Greensill Capital in London declined to remark.Son’s relationship with Greensill started haphazardly: A junior government on the Imaginative and prescient Fund reached out searching for an introduction, folks with information of the matter stated. By Might 2019, SoftBank had invested $800 million in Greensill. It put in an extra $655 million that October.Quickly the 2 had been speaking repeatedly, though SoftBank had investments in additional than 80 startups and Greensill was removed from the most important, in response to folks near the executives. Son touted Greensill at SoftBank occasions for instance of the cooperation he anticipated from his portfolio firms, the folks stated.Greensill bought the identical star therapy as former WeWork Chief Govt Officer Adam Neumann earlier than him and, extra just lately, Ritesh Agarwal, head of India’s Oyo Inns, which has since needed to retrench. A presentation at a 2019 SoftBank shareholders assembly featured photographs of the three males, figuring out them as synthetic intelligence entrepreneurs in “the most important revolution in human historical past.”Greensill, in flip, basked within the consideration, boasting about his conversations with the SoftBank founder, executives at his firm stated.“One of many nice issues about becoming a member of the SoftBank Imaginative and prescient Fund household hasn’t simply been the community, the capital and the recommendation, it’s truly been having Masa as a accomplice and a mentor,” Greensill was quoted as saying on a now-deleted Imaginative and prescient Fund net web page. “He has labored with us, and notably with me, to consider our core enterprise and the way we will truly take that core enterprise and sort out different inequalities and different challenges that exist within the international market.”Greensill was a key a part of what Son dubbed his “Cluster of No. 1’s” technique, taking non-controlling stakes on the earth’s main tech firms and inspiring them to cooperate. In concept, startups would faucet WeWork’s community of co-working areas or use Uber Applied sciences Inc. drivers for deliveries. Greensill’s function was to supply struggling SoftBank startups easy accessibility to financing with out having to pledge onerous collateral.A former Morgan Stanley banker, Greensill, 44, based his agency in 2011, specializing in extending short-term loans secured towards invoices. However among the financing supplied to SoftBank firms was primarily based on predicted future gross sales, not on precise invoices, folks with information of the follow stated.The loans, securitized and changed into bond-like devices often called notes, had been offered to some traders as backed by transactions, in response to advertising and marketing paperwork and other people acquainted with the matter. Traders thought they had been getting short-term debt, the folks stated.Most of the loans had been made by way of supply-chain funds at Credit score Suisse Group AG that attracted $10 billion from traders. Among the many debtors had been SoftBank portfolio firms Oyo, cellular software program agency Honest Monetary Corp. and modular building startup Katerra Inc.SoftBank was additionally an investor within the Credit score Suisse funds, resulting in conflict-of-interest accusations towards the Japanese agency. That sparked an inside assessment on the Swiss financial institution, and SoftBank pulled $700 million out of the funds.“Having an organization inside Imaginative and prescient Fund that makes it simple for startups to get liquidity is probably not a good suggestion,” Kirk Boodry, an analyst at Redex Analysis in Tokyo, instructed Bloomberg Information. “Straightforward cash can confuse issues as a result of the suggestions will get muddled, and also you don’t know in case you are doing issues proper.” He referred to as the Greensill loans an instance of destructive synergies.“On the finish, no matter optimistic synergies they get are most likely going to be irrelevant,” he stated. “However the destructive one will come again to hang-out them.”It was in quest of such synergies that Son had supplied to spend money on Indonesia’s new capital on the island of Borneo and a brand new metropolis Crown Prince Mohammed bin Salman is constructing on Saudi Arabia’s Crimson Beach. It was Son’s dream that portfolio firms akin to Katerra, Oyo, ride-haling startups Ola and Seize and facial-recognition agency SenseTime Group, would win contracts. Greensill would assist present financing.Greensill’s title saved cropping up in Imaginative and prescient Fund conferences and shows, in response to folks acquainted with the matter. When managing companions challenged funding concepts offered by deal groups, the questions would typically give attention to liquidity, a standard drawback for startups. These discussions typically led to Greensill, the folks stated.However by March 2020, a month after the journey to Indonesia, the connection between Son and Greensill started to bitter. The pandemic was squeezing provide chains, and traders pulled billions of {dollars} from the Credit score Suisse funds, Greensill’s largest supply of funding.Greensill turned to Son for capital, saying he may need to name within the financing he had supplied to SoftBank portfolio firms, in response to folks with information of the conversations. Immediately, the weekly telephone calls got here to an finish.Colin Fan, the previous Deutsche Financial institution AG government who managed the funding for the Imaginative and prescient Fund, stopped attending Greensill board conferences on the Savoy Lodge throughout the road from its London workplace.Fan wanted to give attention to different investments, in response to an individual acquainted with the matter, and a spokesperson for the Imaginative and prescient Fund stated different SoftBank representatives remained energetic and shared their considerations with Greensill administration. However the two fund executives who continued to attend Greensill board conferences as observers largely took notes and didn’t ask many questions, in response to two folks acquainted with the matter.That was the case whilst Greensill’s troubles escalated and one in all its insurers, an Australian unit of Tokio Marine Holdings Inc., instructed the agency it wouldn’t renew protection on notes bought to traders together with Credit score Suisse.In December 2020, with Greensill more and more determined for money, SoftBank invested an extra $400 million within the finance firm, in alternate for canceling Katerra’s debt, so Greensill might redeem notes within the Credit score Suisse funds. It additionally put $200 million extra into the development firm.“After WeWork, SoftBank promised to not throw good cash after the unhealthy, however right here we’re once more,” stated Boodry, the analyst. “They knew there have been issues with Greensill, they usually nonetheless put extra money in. It’s virtually like they take the failure of those firms personally.”SoftBank owned about 25% of Greensill on the finish of final 12 months, in response to folks acquainted with the matter. It’s now searching for $1.15 billion as a creditor of Greensill, which filed for insolvency within the U.Okay. on March 8.Fan, who additionally managed Imaginative and prescient Fund investments in Alibaba Native Companies, Flexport Inc. and Honest, stepped away from his function as a managing accomplice on the Imaginative and prescient Fund in January to change into a senior adviser. The corporate didn’t give a purpose.In the meantime, Credit score Suisse is analyzing the function of government board members together with CEO Thomas Gottstein as a part of its probe into dealings with the defunct lender. And, in Germany, regulators have requested prosecutors to look at how Greensill’s Bremen-based financial institution booked belongings tied to British industrialist Sanjeev Gupta. Greensill has stated it sought the recommendation of regulation corporations earlier than classifying its belongings and has complied with requests from German regulators.As for Indonesia, Son has but to observe by way of on his promise to spend money on the brand new capital. He has backed the merger of e-commerce supplier Tokopedia, a SoftBank portfolio firm, with one other Indonesian startup, ride-hailing large Gojek, probably reserving a wholesome revenue.(Corrects and updates paragraph on Colin Fan’s portfolio firms.)For extra articles like this, please go to us at bloomberg.comSubscribe now to remain forward with probably the most trusted enterprise information supply.©2021 Bloomberg L.P.

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