Telstra (ASX:TLS) share price and others caught in Greensill insolvency

The Telstra Corporation Ltd (ASX: TLS) share price will be watched with a close eye, along with others as Greensill moves closer to insolvency

| More on:
Female ASX travel shares investor with surprised expression drinks a cup of tea while reading the newspaper at her desk

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Telstra Corporation Ltd (ASX: TLS) share price, along with numerous other Australian companies, will be watched with a close eye at the moment. This comes as the Greensill Capital collapse ripples through to its clients.

What is Greensill Capital and what happened?

Founded in 2011 and headquartered in London with offices globally, Greensill Capital is the supply-chain financing brainchild of Lex Greensill. The firm tweaked an old concept called 'factoring'. This is where a supplier fast tracks its receivable payments through a financier. The financier later recovers the payment from the larger corporation.

The tweak to the model meant that responsibility for the debt shifted from the supplier to the company. This enabled Greensill to change the terms of repaying debts. Much like the housing collapse in the GFC, Greensill proceeded to bundle and securitise these supply chain debts and sell them to investors.

Cracks propagated in the financing business last year. Greensill became reliant on a handful of large corporations, which meant the risk profile was quite concentrated. As a result, when COVID-19 impacts were felt by these businesses, insurers were made to cough up the costs.

Hence, with a mix of investors running for the exit from the securitised debts and insurers refusing to renew coverage for the debts, Greensill is left on the brink of insolvency.

Impacts on other ASX listed companies

As reported by The Australian Financial Review (AFR), the barrage has fallen on Greensill's clients. Those in the firing line include Telstra, CIMIC Group Ltd (ASX: CIM), and the Australian Rail Track Corporation (ARTC).

The AFR stated:

Invoices for payments owed by the three companies were among the top 10 holdings at the end of January of four supply chain finance funds worth $13 billion that propped up Lex Greensill's empire and were managed by Credit Suisse.

Additionally, Telstra has purportedly assured its suppliers that any outstanding accounts arranged through Greensill's early payment product will be covered by the telecom's own cash. At the end of December, this amount equated to $98 million in payable invoices.

CIMIC and ARTC were also in Credit Suisse's "high income" fund which will be liquated. The multinational contractor, CIMIC, had a finance balance of $144 million at years' end. Meanwhile, ARTC has not provided any information on whether it used Greensill's payment scheme for suppliers.

In early February, we covered CIMIC's controversial use of reverse factoring for payments to suppliers.

Telstra and CIMIC share price recap

Greensill's undoing has gained attention over the last week. So it might be worthwhile looking at how its client's share prices have responded. 

Telstra's share price has lost a mere 0.3% in the last month. The company's $1.259 billion in cash and cash equivalents is more than enough to cover the invoices to its suppliers. This might be helping the share price remain largely unscathed by recent revelations. 

In contrast, CIMIC has been hit by a 25% fall in its share price over the last month. The construction company's use of payment financing has garnered plenty of backlash recently. Some suppliers have reported that CIMIC forced them to use the supply chain financing system for payments. Given CIMIC's high debt to cash ratio and the ongoing opaqueness of Greensill's use, investors appear concerned.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »