March 10, 2021 banking

Lex Greensill was a farm boy turned billionaire banker but his eponymous finance house has hit the buffers


When Greensill Capital filed for insolvency in the UK this week it was a classic tale of financial collapse for the company's founder who transformed his life from a farm boy in his native Australia to a prominent figure on the international financial stage.

Lex Greensill, 44, set up Greensill Capital in 2011 following a career in the City of London, heading up Morgan Stanley’s global supply chain finance team and developing supply chain finance practices for Citibank.

While the company’s headquarters is based in London, it also has offices in New York, Chicago, Miami, Sydney and Bremen, with more than 800 employees across the globe.

Greensill portrayed itself as the champion of small businesses by “making finance fairer” through the provision of supply chain finance – whereby businesses borrow money to pay their suppliers upfront – to customers across the globe.

In 2019, the company extended $143 billion of financing to more than 10 million customers and suppliers in 175 countries.

“We unlock capital so the world can put it to work,” its website states. “No other bank or financial services company has our passion and expertise.”

Such was Mr Greensill’s reach, he received a CBE for services to the British economy in the Queen’s 2017 birthday honours list and once acted as a senior adviser to David Cameron’s government on supply chain finance.

That prominence was repaid when former prime minster Mr Cameron was handed a job in 2018 as an adviser at Greensill.

So, how did Mr Greensill, who was once flying so high, face an insolvency hearing in a London court that sealed the end of a stunning collapse for his eponymous company?

At Monday's court hearing, the company said it was “in severe financial distress” and was unable to repay a $140 million loan to Credit Suisse.

Greensill had begun to unravel at the start of the month when its main insurer refused to renew a $4.5bn contract and Credit Suisse then froze $10bn of funds that had bought securitised loans from Greensill.

In a statement earlier this month, the bank said valuation uncertainty, 'the reduced availability of insurance coverage for new investments and the substantial challenges to source suitable investments make it currently unachievable for the Credit Suisse supply chain funds to remain invested in accordance with their investment policies'.

Greensill said the loss of the insurance contract then led its main client GFG, run by the Indian-British steel magnate Sanjeev Gupta, to start defaulting on its debts, forcing the company to file for insolvency on Monday.

According to the insolvency application, without that insurance Greensill was no longer able to sell notes backed by debts to investors or fund clients such as GFG in return.

'GFG has fallen into severe financial difficulty,' the court filing said. 'GFG has started to default on its obligations.'

Last week, GFG said it had adequate current funds and that its businesses were operationally strong, while the Financial Times reported that Greensill had about $5bn of exposure to GFG.

GFG’s operations include Liberty Steel, the UK’s third-largest steelmaker, which employs 5,000 workers. The government was forced to step in earlier this week to find out what contingency plans are in place to protect workers should Greensill go bust.

But with GFG employing 35,000 people worldwide, it means jobs are also on the line in about 30 countries, including France, Australia and the US.

In court, Greensill’s lawyers said Credit Suisse had demanded repayment of the $140m loan, which it was unable to do.

The saga also involves Swiss asset manager Gam Holding –which closed its Greensill-linked fund – and SoftBank Group's Vision Fund is exposed, after injecting $1.5bn into Greensill in 2019.

Greensill has also been linked to troubled NMC Health, a company founded by former billionaire BR Shetty in 1975 that went on to become the UAE's biggest privately owned healthcare operator. The company's shares were listed on the London Stock Exchange and at its peak in 2018 was valued at £8.58bn ($11.8bn).

However, the business collapsed last year following a December 2019 report from short-seller Muddy Waters that alleged the company had inflated the value of its assets and understated its debt. That led to the appointment of Freeh Group as an independent investigator, which uncovered more than $4bn of previously unreported debt, bringing the total above $6.6bn.

The hospital operator borrowed hundreds of millions of dollars via Greensill through Credit Suisse funds, according to the Financial Times.

On Tuesday, a spokeswoman at NMC declined to comment on the size of that debt.

It is a huge fall from grace for Australian financier Mr Greensill, who grew up in Bundaberg in Queensland on his parents’ sugar cane and melon farm.

He credits the concept for his company to the “the financial hardships” faced by his parents when they had to wait up to two years or more to be paid for the crops they produced.

With no spare money to pay for Mr Greensill's university education, he started working as a clerk straight out of school, while also studying for a law degree in the evenings.

On top of that, he worked with Australia's Fruit and Vegetable Growers Association to rewrite the payment code that ensures farmers in Australia get paid promptly and fairly.

He moved to London in 2001 at the age of 24, where he paid his way through business school and then joined Morgan Stanley.

At the time, the US investment bank was expanding supply chain finance, a concept he thrived on, and it led him to set up the business for both Morgan Stanley and Citibank based on a code similar to the one he had devised for his family’s farm.

It is also the code he would use to set up his own company in 2011.

His company is now being handled by accountancy firm Grant Thornton, which said in a statement it had been appointed administrator of Greensill's two core UK companies, which oversaw its business of buying short-term debt and converting it into bonds for sale to investors, as well as operations in Australia.

Some of the most high-profile drama in this financial tale has taken place in Germany, where Greensill runs a bank. There, financial regulator BaFin closed the bank and asked law enforcement officials to investigate accounting irregularities.

BaFin spent months probing the bank’s exposure to companies linked to Mr Gupta, however Greensill has said in the past that it was always transparent with auditors and regulators about its approach to classifying assets.

The collapse of Greensill has highlighted the risks of the complicated financial products. Mr Greensill quickly became a dominant figure in the niche world of supply chain finance, with some regulators and ratings agencies raising the alarm over how the product can mask escalating borrowing levels.

With about 90 per cent of Greensill’s revenues derived from non-investment grade borrowers, according to filings from the court the largest of those clients is Mr Gupta.

On Tuesday, GFG Alliance was in talks to negotiate a reprieve from its debt obligations to Greensill Capital and prevent a rapid collapse of the metals group.

A standstill agreement with Greensill would help the metal magnate’s group avoid insolvency, according to Bloomberg, with Mr Gupta also looking to raise new financing to replace Greensill’s loans.

Meanwhile, Greensill remains in talks with Apollo-backed Athene Holding on the sale of its operating business. Athene is offering about $60m for Greensill’s IT and intellectual property, the court documents showed.

Any sale is likely to be a fraction of the $7bn valuation Greensill Capital sought in fundraising talks last year when it was considering plans to go public.

While the ending of this financial collapse tale is yet to be decided, the destruction it will cause along the way will be widely watched by the international financial community for some time to come.

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