Hiding Debt

Discussion in 'Markets & Economies' started by JulieW, Sep 25, 2019.

  1. JulieW

    JulieW Well-Known Member Silver Stacker

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    What could possibly go wrong?

    Australian engineering group UGL, which is working on large infrastructure projects such as Brisbane’s Cross River Rail and Melbourne’s Metro Trains, recently sent a letter to suppliers and sub-contractors informing them that as of October 15, they will be paid 65 days after the end of the month in which their invoices are issued. The company’s policy had been, until then, to settle invoices within 30 days.

    The letter then mentioned that if the suppliers want to get paid sooner than the new 65-day period, they can get their money from UGL’s new finance partner, Greensill Capital, one of the biggest players in the fast growing supply chain financing industry, in an arrangement known as “reverse factoring”. But it will cost them.

    Reverse factoring is a controversial financing technique that played a major role in the collapse of UK construction giant Carillion, enabling it to conceal from investors, auditors and regulators the true magnitude of its debt.

    Here’s how it works: a company hires a financial intermediary, such as a bank or a specialist firm such as Greensill, to pay a supplier promptly (e.g. 15 days after invoicing), in return for a discount on their invoices. The company repays the intermediary at a later date. This effectively turns the company’s accounts payable into debt that is owned a financial institution. But this debt is not disclosed as debt and remains hidden.

    https://wolfstreet.com/2019/09/22/hidden-debt-loophole-becomes-popular-with-australian-corporations/
    As my Mum would say; too clever by half.​
     
  2. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    ZipPay/Afterpay for corps?
     
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  3. openeyes

    openeyes Well-Known Member Silver Stacker

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    Yep disaster waiting to happen. Hides the liabilities. There have been a couple of big construction companies go down over the last two years who used reverse factoring.

    The main point is that for shareholders there is a lack of visibility of the real finance position of the company. Not good.
     
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  4. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    It took a while, but down it came and in a spectacular fashion.

    https://www.bloomberg.com/news/arti...illion-empire-unraveled-in-days?sref=i4qXzk6d

    It took Lex Greensill two decades to ascend from the red dirt of his family’s sugar cane and melon farm in Australia to heading his own finance firm and traveling the world on a fleet of private jets. His fall back to Earth took just a week.

    On March 8, his company, Greensill Capital, which boasted billions of dollars in backing from investors such as SoftBank Group Corp. and General Atlantic, collapsed into insolvency. In October, Greensill predicted he would soon sell a small stake of the company for hundreds of millions of dollars, implying a valuation of roughly $7 billion. Finance house Athene Holding Ltd., picking through what’s left of the company, found little of interest beyond computer systems and some intellectual property, which it offered to buy for only $60 million—though that deal now appears questionable. “There were red flags everywhere,” says Stephen Clapham, a forensic accountant who’s examined some of Greensill’s packaged loans. “If I were a professional investor, it would literally take me five minutes to decide that this was uninvestable.”
     
  5. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    https://www.reuters.com/article/us-...owns-fear-greensill-losses-idUSKBN2B30GY?il=0

    From Black Forest to Cologne, German towns fear Greensill losses
    By Tom Sims, Patricia Uhlig

    FRANKFURT (Reuters) - Bad Duerrheim, a town of 13,400 people on the fringes of the Black Forest, is one of many across Germany united by a shared anxiety, the possibility of losing millions of euros invested with Greensill Bank.

    The obscure Bremen-based private bank’s owner Greensill Capital entered insolvency this week after losing insurance coverage for its debt repackaging business.

    Greensill Bank, meanwhile, was locked down by Germany’s financial watchdog last week with a warning of an imminent risk that its debt would become unmanageable and a statement calling some of its financial accounts into question. Greensill Capital said that the bank always sought external legal and audit advice before booking any new asset.

    “We have to find out what happened,” Alexander Stengelin, a Bad Duerrheim official told Reuters.

    German towns have turned to alternative investments such as those offered by Greensill Bank as European Central Bank efforts to prop up the wider economy have resulted in so-called negative interest rates, with fees charged for savings.

    Cologne, famed for its cathedral and perfume, and Wiesbaden, which is close to Germany’s financial capital Frankfurt, both say they consulted brokers on where to park their cash.

    The two, along with at least a dozen others, say they opted for Greensill to avoid fees charged by other banks and encouraged by its once healthy credit rating.

    The municipalities now fear their cash, largely invested at Greensill Bank in time deposits with short maturities of several months, may be lost for good as they are classed as institutional investors and therefore are not covered by a deposit protection scheme for individuals.

    Greensill Bank states this on its website but some cities are nevertheless calling on the federal government to step in to cover any losses they may incur. A Greensill spokesman declined to comment.

    Town officials are now consulting with others in the same position and hope to convene a video call on how to proceed.

    OTHERS AT FAULT?
    With much of Germany still in lockdown and a COVID-19 vaccine rollout proceeding slowly, the timing of the Greensill Bank crisis is difficult for cash-strapped municipalities.

    As more cities and the state of Thuringia, famous for its sausages, have disclosed that they are Greensill Bank customers, the extent of the potential damage has become clear.

    Monheim am Rhein disclosed it parked 38 million euros in funds with Greensill Bank, nearly 1,000 euros per resident.

    Its mayor Daniel Zimmermann said he was in touch with 19 municipalities who together hold 200 million euros ($238 million) in investments with the bank.
    --
     
  6. Oddjob

    Oddjob Well-Known Member Silver Stacker

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  7. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    Credit Suisse will separate out its asset management business and replace the head of the division that has been the centre of the crisis over Greensill Capital-backed supply-chain finance funds.

    The Swiss bank has suspended bonuses for several senior employees, including executive board members, over the scandal and said it would consider clawing back previously paid bonuses.

    The bank’s board has begun an investigation into the matter. “The compensation committee is monitoring developments closely and will determine, based on investigation results, any appropriate actions to be applied,” the company said on Thursday, including any “clawback provisions on variable compensation awards”. Since Credit Suisse suspended $10bn of funds linked to the finance group Greensill Capital at the start of March, the bank has been at the centre of a deepening global scandal.
    --
    The group said that some investors had threatened litigation, adding: “It is reasonably possible that Credit Suisse will incur a loss in respect of these matters,” though it could not estimate the size.

    Senior managers at the bank are facing tough questions over how much they knew about Greensill’s dealmaking and whether they took on too much risk. Last week the Financial Times reported that Credit Suisse risk managers were overruled by executives when they raised concerns about extending a $140m bridging loan to Greensill in October. Lara Warner, the bank’s chief risk and compliance officer, eventually signed off the loan. Credit Suisse has removed three executives at the centre of the crisis.

    https://www.ft.com/content/d328a56c-0388-490f-ad56-d1acb2d37c07
     
  8. SodaPop

    SodaPop Active Member

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    Weird people sitting in small offices inventing even weirder financial instruments that offer only the illusion of reprieve.
     
  9. l***g

    l***g Well-Known Member Silver Stacker

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    I hide mine in the curtain rail
     
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  10. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    You couldn't make it up. This is what happens when the Industrial Capitalism that built the modern world is replaced by the Financial Capitalism that we have now.
     
  11. Jason1

    Jason1 Well-Known Member

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    dont know why they bothered hiding loses, they just need to call them selves a tech company and no one gives a shit that their balance sheet shows massive loses, investors will line up to give them money. Especially in an age when a loan company, or a manufacturing company who builds cars can be called a tech company, they simply should have relabeled their company lol
     
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  12. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    It certainly does.... the German towns was just an example of the extent where the consequences of this enormous mess will begin to crop up. I'm pretty sure the good burgers of Bad Duerrheim did not expect to wake up and discover their town to lose cash thanks to an entrepreneur melon farmer cum FinTech wizard from Down Under.

    To me it's particularly interesting because the EU has been touting their extreme levels of scrutiny and risk-management for banks since GFC - and then this elephant-sized uninvestable pile of turd effortlessly manages to slip through the cracks. o_O
     
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  13. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    Keeps on giving...

    https://www.ft.com/content/ab703b04-ac1e-4589-972b-bbcd64f02e23

    The UK government has drawn up a contingency plan to run Liberty Steel using public money while searching for a buyer, as ministers brace for the potential collapse of Britain’s third-biggest steel company.

    Downing Street is increasingly concerned about Liberty’s current owner GFG Alliance, run by industrialist Sanjeev Gupta, which is scrambling to find new financing after the failure of its main lender, Greensill Capital.

    One option under consideration for Liberty, according to government officials, is to use public funds to maintain production similar to how the Treasury supported British Steel in 2019 at a cost to taxpayers of nearly £600m. The sensitivity over Liberty — which employs 5,000 workers — is heightened by the fact that many of its 12 UK sites are in marginal constituencies including Hartlepool, where there will be a high-profile by-election in early May 1.

    UK taxpayers are already exposed to more than £1bn of debt from GFG and Greensill via three government guarantees.
     
  14. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    No different to Z1P and Afterpay
     
  15. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    https://www.ft.com/content/fe234f59-75b9-44f7-af8a-f05e588957b7

    Greensill Capital’s administrator has been unable to verify invoices underpinning loans to Sanjeev Gupta, after companies listed on the documents denied that they had ever done business with the metals magnate. Greensill, whose collapse last month has become a corporate and political scandal, provided financing to Gupta’s companies backed by payments to his suppliers and from his customers.

    The disputed invoices raise questions over other transactions underpinning billions of pounds of loans from Greensill to Gupta. It comes as the metals magnate’s GFG Alliance, which owns metals plants around the world and employs 35,000 people, teeters on the brink of collapse. The state of Gupta’s UK steel operations has been of particular concern, with unions warning that up to 5,000 jobs are at risk across the country.

    Grant Thornton, which is looking to recoup money owed to Greensill in its role as administrator to the collapsed firm, last month approached companies that were listed as debtors to Gupta’s Liberty Commodities trading firm, which borrowed hundreds of millions of pounds backed by invoices.

    Greensill had extended a receivables financing facility to Liberty Commodities that allowed it to exchange bills from customers for cash upfront. This process, also known as factoring, meant that Greensill would get repaid when the customer settled the invoice, by paying for goods it purchased from Liberty. However, several of these companies have disputed the veracity of the invoices from the metals magnate’s commodities trading firm, according to people familiar with the matter and correspondence seen by the Financial Times.
     
  16. GOLD1

    GOLD1 Well-Known Member

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  17. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    https://www.smh.com.au/business/com...-steel-mill-tahmoor-coal-20210406-p57gya.html

    Credit Suisse moves to liquidate Whyalla steel mill, Tahmoor Coal
    By Sarah Danckert
    April 6, 2021 — 5.40pm

    Investment bank Credit Suisse has launched legal action that could potentially put the Whyalla steel mill and other steel assets owned by billionaire tycoon Sanjeev Gupta into liquidation.

    Citigroup has filed an application on behalf of Credit Suisse in the New South Wales Supreme Court seeking to wind up two entities that are a part of Mr Gupta’s Australian business empire over debts associated with failed financier Greensill Capital.

    [​IMG]
    Sanjeev Gupta standing outside one of the OneSteel mills he bought in 2017.Credit:Bloomberg

    The wind up application includes consent from McGrathNicol for it to act as liquidator over two companies owned by Mr Gupta, including OneSteel Manufacturing, the entity that owns the Whyalla steel mill in South Australia, and Tahmoor Coal, which owns a coking coal asset on the east coast of Australia.

    A first hearing for the application will be on May 6. If successful the entities that own the Whyalla and the Tahmoor coal asset will fall into liquidation - an outcome feared by the unions covering more than 6,000 workers across both business.

    The NSW Supreme Court action follows a similar winding up application in London on behalf of Credit Suisse that was also filed by Citigroup. Citigroup is the trustee of Greensill’s bonds which were part of Greensill’s complex financing arrangements with Credit Suisse.

    Click above link for full article.
     
  18. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    If the winding up orders are successful the liquidaters will sell them on the market as a going concern and repay Credit Suisse, wouldnt be difficult to sell if they are making profits before interest and taxes...... Creditors like Suisse will take a haircut on debt to wipe their hands and as for unpaid taxes likely SA and Feds will chip in to keep the locals off the dole.

    However if they are not cash positive on paper without interest payment and tax obligations than it is just fast forwarding its eventual demise.
     
  19. GOLD1

    GOLD1 Well-Known Member

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  20. jultorsk

    jultorsk Well-Known Member Silver Stacker

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    UK opens probe into Greensill lobbying by ex-PM Cameron

    LONDON (Reuters) -Britain’s government has opened an independent investigation into failed finance company Greensill Capital after lobbying by former Prime Minister David Cameron raised questions over its access to ministers.

    Australian banker Lex Greensill was brought in as an adviser to the government while Cameron was British prime minister from 2010 to 2016. After leaving office, Cameron in turn became an adviser to Greensill’s now-insolvent company.

    The Financial Times and Sunday Times newspapers have reported that Cameron contacted ministers directly to lobby on behalf of Greensill Capital, including sending text messages to finance minister Rishi Sunak and arranging a private drink between Greensill and Health Secretary Matt Hancock.

    Cameron, in his first comments on his actions on Sunday, said he had not broken any rules, but that he accepted his communication with government should be completely formal.

    Britain’s Treasury has said Cameron contacted Sunak and two other ministers in the department to ask if Greensill could have access to the government’s COVID-19 loan schemes at the start of the pandemic.

    https://www.reuters.com/article/uk-...nsill-lobbying-by-ex-pm-cameron-idUSKBN2BZ19R
     

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