Greensill, Gupta and Cameron: what went wrong | FT Film

[Music] this is the story of hubris this is a story of hype green still over the last eight years has significantly disrupted the way working capital has delivered it's one of those stories that's got everything ambition greed power money the dark corners of the financial world and what goes on in it this is the story of lex reinstill and his company greenstall capital a financier who flew too close to the sun it's a story that involves investment banks politicians it's also the story of sanjeev gupta steel works private jets trophy mansions scandal intrigue is the biggest lobbying scandal in british politics for a generation and it's a story that ends in tragedy please understand that i bear complete responsibility for the collapse of greensville capital lex greenstiller was obviously at the center of all of this he's sort of like this financial wizard of ours lex greenstall was the ultimate salesman he had this rags to riches story of being brought up the son of watermelon farmers in australia sometimes companies won't pay them fast enough this would cause financial ruin for his family he ended up coming to the uk in his 20s he started working as an investment banker he then left to create his own firm queensland capital in 2011. mr greenstall are you a fraudster no mr connor i am not green soul capital said it was making finance fairer and helping small businesses get paid faster actually did that by using quite an unsexy technique which is known as supply chain finance a supplier will sell something to a company that company might not pay for quite a long time the supplier obviously wants to get paid as quickly as possible instead of getting paid by the company they get paid by a bank or a company like green silk and then the bank will then reclaim that money later from the company and take a cut of the money a big part of his pitch was look small businesses like my parents would have benefited from having access to the kind of financing that my company is now providing it became a big story because of the way it was being used problems come when you start doing it for less credit worthy companies the key accounting trick here is that this transaction is not classed as debt it lets companies hide how much debt they really have he talked about ai machine learning all these buzzwords how it's all going to make this magically safe some people have questioned whether it was the technology that was the new thing or whether it was the kind of smooth brash salesman skills of lex greenseal which enabled him to open so many doors and to sell as his financing to so many companies disrupting entire kind of economies takes time and therefore a long-term view is critical his whole story was central to the company's rise he'd talk about the red soil of bundaberg that's the place he's from and he'd say that he'd rather be on a tractor than in a suit it got him into the corridors of power in uk government he had access to people like david cameron the former prime minister who would go on to become an employee of greensol capital in 2018 general atlantic gave grinsell 250 million dollars a quarter of a billion dollars in investment a big new york based very highly regarded private equity firm they've got about 50 billion dollars under management these are the guys that backed facebook alibaba and what's critical about that is that it paves the way the following year for softbank to come along they invested one and a half billion dollars softbank wanted to follow in the footsteps of general atlantic by backing our continued growth on a global basis the whole thing reaches a whole other scale at that point he's now this titan of a tech company rather than just a boring banker a big part of the story was that they were using artificial intelligence and technology to turn something that had been a boring backwater of finance into something that was much sexier and more exciting and something that could be branded fintech general atlantic are supposed to be the smartest guys in the room when it comes to tech the fact that they invested in greensville it seemed to say to people well these guys are legit really there was very little technology involved in what greenstone was doing they were relying on third-party companies to provide a lot of the technology it was really when he gets this venture capital money to feed his grand ambition that's when the story really takes off [Music] in 2016 greenfield actually had a horrible year massive losses in 2017 it has this big resurrection it suddenly books 100 million in revenue over that it's incredible so investors were looking at this and they're like wow this guy's actually cracked the secret to this stuff [Music] the actual secret behind that was a man called sanjeev gupta without sanjiv gupta the story wouldn't be the story that we're now telling sanjeev gupta is a british businessman who was born in india as a young man he went to turkey selling bicycles for his father he then went to cambridge university in the uk he was kicked out of university halls for starting his own commodities training business that would be the start of liberty house eight years ago he started buying up steel and aluminium assets around the world from very large steel companies like arsenal mittel these are mostly unloved assets so nobody really wanted them they were sort of seen at the end of their life he brought these up in very rapid succession and built quite a big company gfg alliance he said that he had this way of maintaining all the jobs but at the same time of making the steel works far more environmentally sustainable this really kicked off a run of acquisitions around the world scotland australia the united states europe and india he was buying everything steel works aluminium smelters car parts factories you name it people saw him as a sort of savior of steel saving lots of jobs governments liked him the steel workers liked him and others were always sort of wary you know where's all the money coming from why is he going to be able to do something different that the large steel companies haven't been able to do within the metals industry it raised a lot of questions people were saying who is this guy greenfield was the lender which enabled a lot of this rapid rapid growth through acquisition because they were providing the finance forward as we dug more into gupta's gfg alliance we realized it had been built on financial engineering it was turning rusting steel works into gold-plated finance while he was trying to turn around a number of these businesses he was still going on the acquisition trail and snapping up plants and factories around the world within a few years sanjeev gupta had built this industrial empire with 20 billion dollars in revenues and 35 000 employees but because it was privately owned nobody really knew how it was performing he used these sort of supply chain finance techniques from green soil but he used them in very aggressive ways so this financing would usually be based on invoices you have today often the financing that greenstone did was based on invoices that didn't exist invoices which were going to exist in the future it started to emerge that there were problems at some of these businesses then he promised that he would consolidate all the steel businesses into a single group and publish a set of consolidated accounts that was in 2019 we still have seen no accounts the gfg alliance it's not even a company it's sort of this umbrella term for a web of all these different companies and some of them are owned by gupta and some of them are owned by his father it really is a dizzying array of interlinks both from a shareholder perspective we've got companies that move from one shareholder to the next to the next to the next we have shared directorships with people who are still employees of liberty who are directors of companies that gupta gfg says they are independent so it's a huge web are these independent companies as gfg and gupta keep saying or are they companies where he has stronger say than we might think in terms of what was greensville financing it's kind of a whole mess we're talking about hundreds of different entities here [Music] sanjeev gupta loved hobnobbing with politicians and this proved quite fruitful in lots of countries he got support from the states things really started to get tricky last year when there was a downturn in the steel industry liberty steel his main steel business had to lay off hundreds of workers in the uk sanjeev gupta starts getting uk government-backed covid loans so these are loans of government guarantee and it's supposed to help businesses and he's doing this through green sale there's a 50 million pound cap on the money one company is supposed to be able to draw by carving his business up into lots of different little companies grinsel was able to draw hundreds of millions of dollars through this scheme and now what the financial times revealed is that in august last year he bought a 42 million pound house in belgravia in his wife's name this is a huge house it's a six-story townhouse it's one of the most expensive property sales that year this is not some kind of ordinary family home this is a very very extravagant purchase in one of london's most expensive areas the idea that he was buying that at a time when he was also receiving government bailout money has really struck a chord with a lot of people so this is a man with a real taste for luxury he's got a number of mansions that he owns these trophy homes he really loves flying in private jets the relationship between him and lex greensell and their companies was symbiotic really they end up having matching lifestyles so lex greenstall owned a lot of planes sanjiv gupta ends up owning planes lex greenstall had a plane that matched sanjeev gupta's plane they had the same paint jobs for a company like green sills that have four private jets is deeply unusual supply chain finance it's not a high margin business i know another guy in the industry and he once said to me like rob this is a great industry but i fly ryanair kind of reminds me a bit of philip green the retail tycoon where people were quite happy to go along with his excessive yacht glamorous lifestyle when jobs were safe and pensions were safe when that was no longer the case the reputation of philip green took a massive nose dive and gupta is not the household name that philip greene is but i think his reputation is going to be heading in a very similar direction there's a lot of unanswered questions around trading relationship between gupta and very closely connected individuals but also what we've discovered recently green sales administrator was having trouble verifying some of the invoices there's invoices that green salt financed for gupta and the companies say that they never did any business they have never done any business with them he said he couldn't have done what he's done without the support of green cell because of the nature of the businesses that he was buying he also a traditional bank wasn't going to be that keen to finance these acquisitions so here's where greensell came in it's not just finance it's not just business politics is a huge part of the story jeremy haywood was one of the most powerful civil servants in the country for years he worked for morgan stanley where he met lex greensell and really took him under his wing the most senior civil servant in britain he was the head of the entire civil service he's a character of great probity intelligence and integrity and yet somehow jeremy hayward's head seems to have been turned by this guy lex greenstill he convinced david cameron that he was very smart and he had brilliant ideas lex became an advisor to david cameron he had an official business card um which linked him to to the prime minister lex greenster was given a desk inside number 10. no one quite knew why this guy had free reign throughout whitehall he was trying to sell supply and chain finance his ideas only ended up translating into one project which was a pharmacy scheme it seems deeply unusual for clever banker to be sat in the room with these politicians big question that no one's been able to answer and jeremy haywood sadly died two years ago so he can't answer it either it's why anyone thought this was a better idea than the government simply paying suppliers quicker which they had the power to do to be sort of enmeshed in the corridors of power in the uk it's it's totally unheard of you have this incredible access you know the kind of access that most entrepreneurs starting businesses could never dream of and it perhaps speaks to the salesmanship of lex greenstall that he was able to get himself in the room fast forward a few years and david cameron had been prime minister for six years he leads the remain side of the eu referendum he loses by 52-48 and he quits straight away and then in 2018 he's offered this job by lex greensell who of course he already knows because greensell was advising him there's also another civil servant who was in charge of 40 billion of government procurement called bill crothers he also started working for greenfield these civil servants are almost as important as david cameron in this whole story there was talk about the business being worth eventually something like seven billion dollars david cameron ended up with share options equivalent to something like one percent of the company david cameron's investment would have been worth something up to 70 million dollars i'm sure david cameron's already quite a wealthy man but you know this would have been very lucrative obviously those options that david cameron had that we assume worth nothing now you then have several years where he is going around the world alongside lex greensteal david cameron lex greenstall they went on a camping trip with the crown prince of saudi arabia you know this wasn't a passive role that david cameron played in the business he was opening doors and he was helping lex greenstall wow people around the world he's less an advisor more emissary of influence until it all comes crashing down coronavirus strikes renzo wanted access to coveted loan schemes and it was having some difficulty getting approval david cameron rang rishi sanak he texted rishi sanek our chancellor the government was setting up four or five different debt schemes in order to help companies that were struggling because of the pandemic greensville got no fewer than 10 meetings with the two most senior simple servants in the treasury you think about how desperate companies were you know not many companies had a former prime minister in their midst who was ringing the chancellor in charge of the nation's finances there are all sorts of lobbying scandals here and there but it's incredibly rare for them to involve a former cabinet minister directly asking his mates his former colleagues for a favor this whole episode really threatened to tarnish the legacy and reputation of david cameron a former prime minister who himself introduced rules around corporate lobbying i think he thought this was an opportunity to make a big success in business we've been trying to reach david cameron the one time i managed to get hold of him on his mobile phone he said can you talk to my office i said your office has been stonewalling me for two weeks and he hung up for someone who said in 2010 the next big political scandal is going to be about lobbying there's a certain irony there greensol bank is a core part of this story this bank is nearly 100 years old he bought it and renamed it it's in bremen german regulators had started looking into how closely linked greensville bank was with sanjeev gupta it's providing large amounts of opaque financing to one person the managers of the bank are under criminal investigation for alleged balance sheet manipulation you can get three years in prison for this in germany it's no joke greensell's trick was to take this area of unsexy finance and turn it into investment securities they would basically package unpaid bills into securities called notes they took these notes and then sold them to investment funds and one of the biggest investors was the swiss asset manager gam we had jeremy hayward earlier we have tim haywood now he was a british fund manager but he worked for a swiss farm but he was providing large amounts of financing to green sill and greensell was using it to fund gupta hayward got suspended by gam he put some of these green sill investment products into funds that let investors withdraw their money daily but they're actually really hard to sell a lot of gupps's debt ended up stuck in the funds credit spreads are really important in all of this it's set up these supply chain finance funds credit suisse's really rich clients would invest in greenfield stuff greenstone was saying it's fine that we're packaging up all of this debt and selling it on because it's all insured and so it's safe this is a safe investment as a safe asset class in the summer of 2020 the company that was providing the insurance said hang on a minute we're not so sure about this anymore credit swiss pulled the plug on the funds and now its clients could be losing billions a couple of years back we came across credit suisse and the supply chain finance fund in a huge fraud called nmc health which even then in 2019 started raising questions as to the validity of a lot of this debt that was in there when david cameron was lobbying the treasury the credit swiss funds had financed a lot of green source clients that were going bust the thing that really tipped greensville capital over the edge was the insurance we find out that there's a hearing going on in court to put this company into administration that was when it became clear quite how much exposure the company had to sanjeev gupta five billion dollars of exposure to gupta's companies no bank in the world would extend that much credit to sanjiv gupta's steel works gupta's gfg alliance group also went to the uk government recently and they did ask for a 170 million pound bailout which the uk government has actually refused we're talking about the corridors of power people who are driving expensive cars or flying expensive planes behind gfg alliance you've got real people who work in real steel companies who might be losing their jobs britain's business secretary quasi quartering said that the reason the government refused the plea for money were two things one is the opaque structure of gupta's gfg alliance group and also because there were concerns that the money might go ashore and not actually stay within the uk gupta's modus operandi has involved making bold promises of renewal and investments but it's never been matched by the kind of financial transparency that you would expect if you ask the workers at his plans they're still taking him out his word he's come out and he said i'm looking for long-term financing i'm going to do the best i can and and the workers at the moment are backing that they're saying you know sandeep is saying this is what's happening we believe him someone like sanjiv gupta is very appealing someone who comes in and says i have a magic formula i'm not going to fire anyone you can see why that was quite alluring to politicians but they're perhaps now learning that if something sounds too good to be true it probably is what's astonishing i think is that a lot of the issues scam credit suisse problems questions raised about gfg aligned questions about green sales business model questions about green cell bank had all been out in the open before david cameron made those approaches to the treasury this is an incredible fall from grace for lex greensell a man who was celebrated as a financial visionary what this story will ultimately be remembered for it's the way that lex greenster was able to persuade people that some pretty mundane factoring business was some incredible high-tech solution high finance still has the power to confuse or to bedazzle most of us i mean there is a big question here for the regulators where were the regulators why was the government why did so many people jump on the bandwagon of greedsell there are echoes of 2008 in this scheme the subprime mortgage disaster was all about people thinking the complicated financial products that financial engineering could make bad loans magically safe it's the same thing here when people come along with promises of great investments or when they say that they've reinvented an age-old form of finance or that they can rejuvenate industries a real dose of skepticism needs to be applied this story has such far-reaching consequences there's a lot of jobs at stake you know a lot of people work in the steel making industry and their lives are in his hands to some extent now and that's the really important issue it's a good lesson about the hype around technology the stuff that greenstone was doing it was it's centuries old really financing invoices goes back to the middle ages the idea that ai and machine learning could magic away all the risk in it it's just a fantasy [Music]

Channel: Financial Times

Views: 234,524

Rating: 4.9004283 out of 5

Keywords: greensill, david cameron, gupta. sanjeev gupta, lex greensill, greensill capital, business, markets, steel, investment banking, credit suisse, gam, holding gam, softbank, masayoshi son, investing, investment, saudi arabia, mbs, mohammed bin salman, explained finance, finance explained, supply chain, finance supply chain, liberty steel, australia, uk, uk politics, tory party, tories, conservatives, lobbying, lobbying scandal, cameron, general atlantic, technology, technology company, tech

Id: OhkFbgxQuXA

Length: 21min 41sec (1301 seconds)

Published: Thu May 13 2021