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How Masayoshi Son’s “Money Guy” Lex Greensill went from hero to zero

(Bloomberg) – In February 2020, Masayoshi Son of SoftBank Group Corp. visited Indonesia and offered to invest billions of dollars in the development of a new capital. Lex Greensill, a Son favorite at the time, was part of the retinue. SoftBank had invested $ 1.5 billion in Greensill’s eponymous financial company, but in a meeting with Indonesian President Joko Widodo, Son introduced Greensill as a “money man”. A year later, the money man has become a money pit. Greensill Capital collapsed in one of the most spectacular financial explosions in recent years in March, sending shock waves through a Swiss banking giant, two of the largest Japanese companies and the industrial empire of a British tycoon. Son had to write down his investment and make it. Alongside the implosion of WeWork Cos., Another SoftBank portfolio company, it is one of the worst in the history of his Vision Fund. Thanks to the IPO of South Korean e-commerce company Coupang Inc. and a rising valuation of the Chinese start-up, that can’t prevent SoftBank from having its strongest quarter to date, including a profit of more than $ 30 billion on the Vision Fund Didi Chuxing Technology Co., according to people with knowledge of the matter. Still, the episode underscores the risks of Son’s strategy of taking large stakes in start-ups and encouraging these portfolio companies to work together. The spokesmen for SoftBank Group in Tokyo and Greensill Capital in London declined to comment. Son’s relationship with Greensill started arbitrarily: A Junior Executive of the Vision Fund was looking for an introduction, knowledgeable people said. By May 2019, SoftBank had invested $ 800 million in Greensill. Another $ 655 million was invested that October. Soon the two were chatting regularly, even though SoftBank had invested in more than 80 startups and Greensill was close to the biggest, according to executives. Sohn praised Greensill at SoftBank events as an example of the collaboration he had expected from his portfolio companies. Greenill received the same star rating as former WeWork CEO Adam Neumann before him and more recently Ritesh Agarwal, India’s director of Oyo Hotels, who have since retired. During a presentation at a SoftBank Annual General Meeting in 2019, photos of the three men who identified them as entrepreneurs of artificial intelligence in the “greatest revolution in human history” were shown. Greensill, in turn, was attentive and bragged about his conversations with the SoftBank founder. Executives at his company said, “One of the great things about joining the SoftBank Vision Fund family was not just the network, capital, and advice, but Masa as a partner and mentor,” Greensill was quoted as saying on a now-deleted Vision Fund- Website. “He has worked with us, and with me in particular, to think about our core business and how we can actually leverage that core business and address other inequalities and other challenges in the global marketplace.” Greensill was an integral part of what Son called his strategy “Cluster of No. 1 ”by acquiring non-controlling interests in the world’s leading technology companies and encouraging them to work together. In theory, startups would leverage the WeWork network of co-working spaces or use drivers from Uber Technologies Inc. for deliveries. Greensill’s job was to offer ailing SoftBank startups easy access to finance without pledging onerous collateral. Former Morgan Stanley banker Greensill, 44, started his company in 2011 and has focused on providing short-term bill-backed loans. However, some of the funding provided to SoftBank companies was based on forecast future sales, rather than actual bills, as those with knowledge of the practice said. The securitisations, which have been securitized and converted into bond-like instruments known as Notes, have been presented to some investors as being supported by transactions, according to marketing documents and people familiar with the matter. Investors thought they were going to get short-term debt, people said. Many of the loans were made through Credit Suisse Group AG supply chain funds, which have attracted $ 10 billion from investors. Borrowers included SoftBank portfolio companies Oyo, mobile software company Fair Financial Corp. and the modular construction startup Katerra Inc. SoftBank was also an investor in the Credit Suisse funds, which led to allegations of conflict of interest against the Japanese company. This triggered an internal review at the Swiss bank, and SoftBank pulled $ 700 million out of the fund. “Having a company within the Vision Fund that makes it easy for startups to get liquidity may not be a good idea,” said Kirk Boodry, an analyst at KirkBoodry Redex Research in Tokyo, told Bloomberg News. “Easy money can confuse things because feedback gets mixed up and you don’t know if you’re doing things right.” He cited the Greensill loans as an example of negative synergies: “In the end, the positive synergies they get are likely to be irrelevant,” he said. “But the negative will come back to haunt her.” In search of such synergies, Son had offered to invest in Indonesia’s new capital on the island of Borneo, and a new city, Crown Prince Mohammed bin Salman, is building on Saudi Arabia’s Red Sea Coast. It was Son’s dream that portfolio companies like Katerra, Oyo, ride-haling startups Ola and Grab, and facial recognition company SenseTime Group would win contracts. Greensill would provide funding. Screenill’s name kept popping up in the meetings and presentations of the Vision Fund, according to those familiar with the matter. When managing partners questioned the investment ideas put forward by deal teams, the questions often centered around liquidity, a common problem for startups. Those discussions often led to Greensill, people said. But in March 2020, a month after traveling to Indonesia, Son and Greensill’s relationship began to turn sour. The pandemic squeezed supply chains and investors pulled billions of dollars from Credit Suisse funds, Greensill’s largest source of funding. Greenill reached out to Son for capital and said he may need to use the funding he had made available to SoftBank portfolio companies to those aware of the conversations. Suddenly the weekly phone calls ended. Colin Fan, the former managing director of Deutsche Bank AG who managed the investment for the Vision Fund, no longer attended Greensill’s board meetings at the Savoy Hotel across from the London office. Fan Needed to Focus According to a person familiar with the matter and a spokesman for the Vision Fund, other SoftBank representatives said other SoftBank representatives were still active and shared their concerns with Greensill management. But the two fund managers, who continued to attend Greensill’s board meetings as observers, 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 problems escalated and one of its insurers, a Tokio Marine Holdings Inc.’s Australian unit, told the company that it did not provide cover for bonds sold to investors like Credit Suisse will renew. In December 2020, SoftBank invested an additional $ 400 million in the financial firm Exchanges to pay off Katerra’s debt so that Greensill can redeem Notes in Credit Suisse’s funds. In addition, $ 200 million more was invested in the construction company. “After WeWork, SoftBank promised not to throw good money after bad, but now we’re back,” said Boodry, the analyst. “They knew Greensill had problems, and they still invested more money. It’s almost like they personally accept the failure of these companies.” SoftBank owned approximately 25% of Greensill late last year, according to people familiar with the company matter. The company is now targeting $ 1.15 billion as a creditor to Greensill, which filed for bankruptcy in the UK on March 8th. Fan, who also managed the Vision Fund’s investments in Alibaba Local Services, Flexport Inc., and Fair, stepped down from his role as managing partner at Vision Fund in January to become a senior adviser. The company gave no reason. In the meantime, Credit Suisse is reviewing the role of board members, including CEO Thomas Gottstein, as part of its investigation into its dealings with the deceased lender. In Germany, regulators have asked prosecutors to investigate how the Bremen-based bank has booked Greensill’s assets tied to British industrialist Sanjeev Gupta. Greensill said it sought advice from law firms and complied with requests from German regulators before classifying its assets. As for Indonesia, Son has not yet kept his promise to invest in the new capital. He has helped merge e-commerce provider Tokopedia, a SoftBank portfolio company, with another Indonesian startup, hail giant Gojek, which may be making a healthy profit. (Corrects and updates the Colin Fan Portfolio Companies paragraph.) For more articles such as this, please visit us at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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