Exim Bank’s Greensill deal raises questions over due diligence

The US Export-Import Bank, a government agency that helps American exporters, signed what was hailed as a “groundbreaking” deal with Greensill Capital just two months before the supply-chain finance company collapsed.

The timing raises questions about the due diligence that the Exim Bank and Pefco, its funding partner on the deal, conducted on Greensill, whose German banking subsidiary was under investigation by regulators last year.

Greensill had in recent years tried to make aggressive inroads into a potentially lucrative American market. The group’s implosion has reverberated in the US, with West Virginia governor Jim Justice, whose company Bluestone Resources was a customer, launching a lawsuit.

The failure of SoftBank-backed Greensill, which paid the bills of companies early in exchange for a fee, has sparked a lobbying scandal in the UK after the Financial Times revealed the extent of the group’s ties within government.

Under the terms of the Exim Bank deal signed in January, Greensill agreed to provide $50m in supply-chain financing to Freeport LNG, a Texas-based natural gas facility. Exim Bank offered to guarantee 90 per cent of the loan for the deal, which it hailed as its first ever for the US liquefied natural gas industry and one that would support 200 domestic jobs.

Lex Greensill, the founder of the eponymous firm, championed the deal, saying that “off-the-shelf solutions and traditional approaches are simply not good enough to unlock the working capital they [companies] need to operate and grow, while at the same time protecting them against potential risks”.

At the time the transaction was announced, however, German financial regulator BaFin was investigating Greensill’s banking subsidiary and in early March it filed a criminal complaint against the bank’s management for suspected balance sheet manipulation. Greensill had been notified last September that its insurer would not extend cover for its lending, a move that ultimately led to its collapse.

Founded in the wake of the Great Depression, Exim Bank helps finance US exports by providing state-backed guarantees. Its due diligence has come under renewed scrutiny in recent weeks, including a decision to lend $4.7bn to a gas project in Mozambique last year.

Exim Bank’s own analysis warned of security concerns that have since caused the project’s operator Total to declare force majeure following jihadi attacks, Bloomberg reported.

The Freeport LNG deal came after lobbying from the US LNG industry, including trade association LNG Allies, which had initially opposed Exim Bank’s Mozambique loan and pushed for ways in which the agency could help domestic producers.

LNG Allies withdrew its opposition to the Mozambique loan after an August 2019 meeting between groups representing the LNG industry and Exim Bank, according a letter released under transparency laws and provided to the FT by Source Material, a non-profit investigative journalism organisation.

According to the letter, LNG Allies pointed to the “active engagement” by Exim Bank “in developing creative financing solutions” to create opportunities for the LNG industry.

Pefco, a private company owned by a mix of international banks and industrial groups, has been a regular participant in Exim Bank deals and was involved in the Greensill one.

It typically buys Exim Bank’s guaranteed loans in the secondary market from the original lender, providing liquidity and cutting the risk.

In a statement to the FT, Exim Bank said it had no exposure to the supply-chain finance company. “Greensill Capital was a guaranteed lender that was designated by the exporter, Freeport LNG,” the bank added. “Greensill served as the guaranteed lender and servicer of the loan, and Freeport’s repayment of the loan is being made directly to Pefco.”

Exim Bank said its due…