HERO TO ZERO
How SoftBank chief’s ‘money guy’ fell from favour.
● In February 2020, Masayoshi Son visited Indonesia, offering to invest billions of dollars toward the development of a new capital city. Lex Greensill, at the time a favourite of the SoftBank Group founder, was part of the entourage.
SoftBank had invested $1.5 billion in Greensill’s eponymous finance company. In a meeting with Indonesian President Joko Widodo, Son introduced Greensill as the “money guy”.
One year later, the money guy has become a money pit. Greensill Capital collapsed in March in one of the most spectacular financial blow-ups of recent years, sending shock waves through a Swiss banking giant, two of Japan’s largest firms and a British tycoon’s industrial empire.
Son has had to write down his investment, making it among the worst in the history of his Vision Fund, alongside the implosion of WeWork, another SoftBank portfolio company.
That’s unlikely to prevent SoftBank from posting its strongest quarter on record, including a profit of more than US$30 billion at the Vision Fund, thanks to the initial public offering of the South Korean e-commerce firm Coupang Inc and the soaring valuation of the Chinese ride-hailing business Didi Chuxing, say industry sources.
Still, the episode underscores the risks of Son’s strategy of taking big equity stakes in startups and then encouraging those portfolio companies to collaborate with each other.
Spokespersons for SoftBank Group in Tokyo and Greensill Capital in London declined to comment.
Son’s relationship with Greensill began haphazardly: A junior executive at the Vision Fund sought an introduction, people with knowledge of the matter said. By May 2019, SoftBank had invested $800 million in Greensill. It put in an additional $655 million in October of the same year.
Soon the two were talking regularly, even though SoftBank had investments in more than 80 startups and Greensill was far from the biggest, according to people close to the executives. Son touted Greensill at SoftBank events as an example of the cooperation he expected from his portfolio companies, the people said.
Greensill got the same star treatment as former WeWork chief executive officer Adam Neumann before him and, more recently, Ritesh Agarwal, the head of India’s Oyo Hotels, which has since had to retrench.
A presentation at a 2019 SoftBank shareholders’ meeting featured photos of the three men, identifying them as artificial intelligence entrepreneurs in “the biggest revolution in human history”.
Greensill, in turn, basked in the attention, boasting about his conversations with the SoftBank founder, executives at his company said.
“One of the great things about joining the SoftBank Vision Fund family hasn’t just been the network, the capital and the advice, it’s actually been having Masa as a partner and a mentor,” Greensill was quoted as saying on a now-deleted Vision Fund web page.
Greensill was a key part of what Son has dubbed his “Cluster of No. 1’s” strategy, taking non-controlling stakes in leading tech companies and encouraging them to cooperate. In theory, startups would tap WeWork’s network of co-working spaces or use Uber drivers for deliveries, for example. Greensill’s role was to offer struggling SoftBank startups easy access to financing without having to pledge onerous collateral.
Greensill, 44, rose from working on his family’s melon and sugarcane farm in Australia to roaming the skies in a private jet. A former Morgan Stanley banker, he founded his firm in 2011, focusing on extending short-term loans secured against invoices. But some of the financing provided to SoftBank companies was based on predicted future sales, not on actual invoices, people with knowledge of the practice said.
The loans, securitised and turned into bond-like instruments known as notes, were presented to some investors as backed by transactions, according to marketing documents. Investors thought they were getting short-term debt, the people said.
Many of the loans were made through supply-chain funds at Credit Suisse that attracted $10 billion from investors. Among the borrowers were SoftBank portfolio companies Oyo, the mobile software firm Fair Financial and the modular construction firm Katerra Inc.
SoftBank was also an investor in the Credit Suisse funds, leading to conflict-of-interest accusations against the Japanese firm. That sparked an internal review at the Swiss bank, and SoftBank pulled $700 million out of the funds.
“Having a company within Vision Fund that makes it easy for startups to get liquidity may not be a good idea,” Kirk Boodry, an analyst at Redex Research in Tokyo, told Bloomberg News. “Easy money can confuse things because the feedback gets muddled, and you don’t know if you are doing things right.”
He called the Greensill loans an example of negative synergies.
“It the end, whatever positive synergies they get are probably going to be irrelevant,” he said. “But the negative ones will come back to haunt them.”
It was in search of such synergies that Son had offered to invest in Indonesia’s new capital on the island of Borneo, and in a new city Crown Prince Mohammed bin Salman is building on the Red Sea coast in Saudi Arabia. It was Son’s dream that portfolio companies such as Katerra, Oyo, the ride-haling firms Ola and Grab and the facial-recognition firm SenseTime, would win contracts. Greensill would help provide financing.
Greensill’s name kept cropping up in Vision Fund meetings and presentations. When managing partners challenged investment ideas presented by deal teams, the questions would often focus on liquidity, a common problem for startups. Those discussions often led to Greensill, said people familiar with the matter.
But by March 2020, a month after the trip to Indonesia, the relationship between Son and Greensill began to sour. The Covid pandemic was squeezing supply chains, and investors pulled billions of dollars from the Credit Suisse funds, Greensill’s largest source of funding.
Greensill turned to Son for capital, saying he might have to call in the financing he had provided to SoftBank portfolio companies, according to people with knowledge of the conversations. Suddenly, the weekly phone calls came to an end.
Colin Fan, a former Deutsche Bank executive who managed the investment for the Vision Fund, stopped attending Greensill board meetings at the Savoy Hotel across the street from its London office.
Two other SoftBank representatives remained active and shared their concerns with Greensill management, but at board meetings they mostly took notes and didn’t ask many questions, according to two people familiar with the matter.
That was the case even as Greensill’s troubles escalated and one of its insurers, an Australian unit of Tokio Marine Holdings, told the firm it wouldn’t renew coverage on notes sold to investors including Credit Suisse.
In December 2020, with Greensill increasingly desperate for cash, SoftBank invested an additional $400 million in the finance company, in exchange for cancelling Katerra’s debt, so Greensill could redeem notes in the Credit Suisse funds. It also put $200 million more into the construction company.
“After WeWork, SoftBank promised not to throw good money after bad, but here we are again,” said Boodry.
SoftBank owned about 25% of Greensill at the end of last year. It is now seeking $1.15 billion as a creditor of Greensill, which filed for insolvency in the UK on March 8.
Meanwhile, Credit Suisse is examining the role of executive board members including CEO Thomas Gottstein as part of its probe into dealings with the defunct lender. And in Germany, regulators have asked prosecutors to examine how Greensill’s Bremen-based bank booked assets tied to the British industrialist Sanjeev Gupta.
As for Indonesia, Son has yet to follow through on his promise to invest in the new capital. But he has backed the merger of the e-commerce provider Tokopedia, a SoftBank portfolio company, with the ride-hailing giant Gojek, potentially booking a healthy profit.
“After WeWork, SoftBank promised not to throw good money after bad, but here we are again” KIRK BOODRY Redex Research analyst