Lex Greensill’s $US500m raising for growth after weathering COVID storm
Regulators have been circling, private jets put on the block and the scathing headlines just keep coming, but Lex Greensill is digging in — and ready to take on his critics.
If there is one thing in the world Alexander “Lex” Greensill would love to be doing right now, it would be coating his hands in the rich red dirt of one of his family’s sweet potato farms outside Bundaberg.
Or driving a brand new gigantic harvester around the family’s 5000 hectare sugar cane farm nearby, which at its highest point boasts sweeping views over some of the finest farmland in Central Queensland.
Instead the Australian-born entrepreneur is thousands of miles from his homeland. For months on end during 2020 he’s been locked down on his Northern English property at Saughall in rural Cheshire with his English doctor wife Vicky and their two boys, as the second wave of the COVID-19 pandemic has run rampant.
His farmer parents, Lloyd and Judy, were due to visit earlier this year from Bundaberg but had to postpone the visit indefinitely when COVID-19 struck.
They might live a world away, but they haven’t missed some of the scathing headlines in the likes of The Wall Street Journal and The Financial Times during 2020 about their eldest son.
Regulators have been circling, private jets put on the block and several clients of Greensill’s financing products — in addition to controversial steel baron Sanjeev Gupta — have hit financial troubles. As has his billionaire Japanese backer.
His favourite Swiss investment bank has also been mired in a conflict of interest controversy.
But the most damning revelations — made in The Australian earlier this year — were that his controversial high-tech supply chain finance company was being used by big corporations to crucify small suppliers.
“It is possibly harder for them. That is the truth,” Greensill tells The Weekend Australian of his parents, who he remains deeply close to.
“It is not a lot of fun seeing your son given a kicking in the press. I don’t think that would please any parent ... Especially when they feel protective. What has been great is they have stood beside me. They didn’t run for cover. They stood next to me and said ‘We are right here with you Lex, we think what you are doing is the right thing. And we understand there is a different side to this story’.”
In Bundaberg the Greensill Farming Group, now run by Lex’s brother Peter, was established by his grandfather Roy in 1947 and inherited by his father.
Peter and Lex are also shareholders in the Greensill supply chain finance business, which specialises in paying the invoices of the suppliers of its clients promptly and collecting the money from the clients later, earning fees on the transaction and funding it via bond issues.
“That is the neat thing about having a family business. People are with you because of your blood, not because it is financially worthwhile. I am blessed to be in a family business where we all stand shoulder to shoulder with one another,” the latter says.
In a wide-ranging interview where he responds to the critics and fires off a few barbs of his own, Lex Greensill wants to make it clear he hasn’t been curled up in the corner of his English home in recent months hiding from the controversies.
Rather he claims COVID-19 has confirmed the resilience of his business, which is currently raising between $US500m and $US600m ($674m to $808m) in pre-IPO capital raising, aiming for a $US7bn valuation on the company.
Greensill won’t confirm the numbers, but says the raising should be completed in the first quarter of 2021 and has so far enjoyed strong demand, including from Australian investors.
“The only reason we are raising capital is the demand we see, especially for our Earnd product (an app which allows employers to give staff access to their wages during a pay cycle at no charge) ... Otherwise we are very profitable and generate strong free cashflow,’’ he says.
“Everywhere we look the demand is off the charts. That offering, together with our supply chain portfolio, our mobile phone handset financing and our offerings in the agriculture space, they have all created opportunities for us to continue to grow.”
Greensill, which now employs 1100 staff worldwide, will close its books on December 31 with just under $1bn in revenue for 2020, up from more than $600m last year.
“It will be more than 50 per cent up on last year. Next year we expect to be around $1.25bn or thereabouts for the year. That gives us a compound average growth rate of 80 per cent over the past five years,’’ he says.
Greensill says no specific date has been chosen for an IPO, but “within the next two years is likely”, after the plans were derailed in 2020 by COVID-19. The controversies that plagued the company during the year also didn’t help.
Greensill has attracted backing from private-equity firm General Atlantic, which invested US$250m in 2018, and Japanese conglomerate SoftBank’s Vision Fund, which invested nearly $US1.5bn last year.
Given those levels of funding, many wonder why his company would need to raise more capital now? Its critics might call it a post-COVID-19 dash for cash. But Greensill claims otherwise.
“The thing that is new that wasn’t planned originally when we raised capital from SoftBank and GA was the consumer side of our business. The employee side,” he says.
“We see tremendous opportunity there. In the light of that there are going to be a number of things we want to do to grow that footprint, including potential acquisitions. With COVID-19 employers are now more than ever looking at what they can do to help their employees.”
Greensill acquired Earnd, which was founded by Australian entrepreneurs Josh Vernon and Serge Kotlyarov, earlier this year following the launch of the Greensill pay app — its first consumer product offering — with the UK National Health Service.
Currently the Earnd app has been made available to 130,000 employees in the United Kingdom and Australia.
Its Australian clients include Hungry Jacks, Tyro Payments, BPAY and Best & Less.
The Earnd business now has its own advisory board, while Josh Vernon has relocated to London to be at the coalface of the operations.
It is also about to launch a remittance capability, allowing employees to send parts of their pay cheques to other individuals such as family members abroad.
Greensill, a born-optimist, uses a single, seemingly understated word to sum up 2020: “Eventful.”
“It was certainly not what I expected. Unexpected opportunity and unexpected surprises and a need to be a bit more nimble than usual. But it has been our best ever year in terms of new customers, which is tremendous,’’ he says.
“2020 feels like it is COVID-19 year. I love a challenge and this year has certainly presented some fun ones to test us out. But the thing that has been exciting within the organisation has been how the dynamic of our team has stretched to deliver, in unprecedented circumstances.”
Wise advice
There was one piece of advice Greensill received this year that stood out from the rest like a beacon. It came from Softbank’s eccentric billionaire founder, Masayoshi Son.
“The point that was made to me by Masayoshi was ‘Lex, you won’t be talked about if you are irrelevant. But if you are relevant, people will talk about you. So as a shareholder, I am glad to see people write about you because it means you are and what you are doing is relevant. So from that perspective, harden up.’ That was basically his point to me,” Greensill says.
In July Swiss banking giant Credit Suisse revealed it was overhauling a group of supply chain finance funds that had been dogged by conflict of interest accusations over a complicated network of links to SoftBank.
The bank said three of the funds had agreed with SoftBank to buy only debt arranged by Greensill and those funds then made big bets on the debt of struggling start-ups backed by SoftBank’s Vision Fund, which is also a backer of Greensill.
It was a circular arrangement that alarmed the bank and its clients.
SoftBank eventually redeemed $700m from the Credit Suisse funds and the bank said no investors had incurred losses as a result of the controversial arrangements.
At the time Greensill said it welcomed the steps being taken by Credit Suisse “in the interests of all investors”.
In May SoftBank also posted the biggest annual loss of any listed Japanese company in history and lost Jack Ma, a co-founder of the Chinese e-commerce giant Alibaba, from its board. But it has since ridden the wave of the massive global rally in tech stocks, last month reporting that its first-half net profit soared 346.7 per cent.
Asked about his relationship with SoftBank and Masayoshi Son, Greensill describes it as “very strong.”
“As much as anything, this year has been a year where having sage counsel has been even more valuable than previously. Masa’ has been around the traps a few times before. The weekly chat I have with him has been even more invaluable. It has been tremendous to have a learned mentor in Masa’ and the broader SoftBank organisation,’’ he says.
But the Credit Suisse scandal played into a broader criticism of Greensill and supply chain finance during the pandemic, as critics argued the practice could mask risks on companies’ balance sheets, alarming ratings agencies and regulators.
In Australia the use of supply chain finance programs by big listed companies like CIMIC, Telstra and Rio Tinto attracted criticism from the likes of Small Business Ombudsman Kate Carnell, who argued that big companies were using the practice — also known as “reverse factoring” — to push out payment terms.
Greensill has defended his model as helping to improve the cash flow of small suppliers and stressed he wouldn’t do business with companies that misused his products.
“We feel good about the stance we have taken overall. In terms of valuation or perception in the market, it is definitely the case that we think some folks have misrepresented the utility of what we do. But the truth is the demand for what we do has significantly increased and COVID-19 has pointed to the fragility of global supply chains. That demand speaks for itself,’’ he says.
Yet it took until the end of November for CIMIC to agree to pay its small business suppliers within the 30 days. Greensill had given all its clients a deadline of October 30 to change their payment terms and some critics say it only did so in response to publicity about CIMIC’s rogue practices.
“We support thousands of SMEs and so we needed to make sure we provided customers with an appropriate period of time to be able to put alternative arrangements in place,” Greensill says, declining to talk about specific clients such as CIMIC.
“The last thing we wanted to do was state what our position was and then two minutes later turn the tap off and then you have 1000 businesses that go bust. That would be terrible, foolish and somewhat self-defeating in terms of what we were trying to achieve.”
Greensill won support for its stance from Kate Carnell, while ACCC chairman Rod Sims has been clear supply chain financing is not unlawful, and could in some be a good option for small businesses. But not where it was being used to bully small business, especially during COVID-19.
“We discussed with both the timing of the approach we were taking and they were supportive of that,” Greensill says.
“There are now no clients in Australia that are operating in contravention of the commitment I made earlier this year.”
Greensill’s close ties to Sanjeev Gupta’s GPG Alliance Group have previously brought him headaches. During 2020 they didn’t go away.
Gupta’s Liberty Primary Metals Australia, the entity that controls the Whyalla steelworks in South Australia, the Tahmoor coking coal mine in NSW and associated companies, slumped to a $124.6m loss last financial year. South Australia’s Small Business Commissioner recently warned the state government not to commit cash to the British billionaire’s revitalisation of Whyalla amid ongoing concerns over late payments to suppliers.
But Greensill describes Gupta as “a valued client of ours and we are delighted to have them as a customer. He continues to have our full support and confidence”.
Because Greensill has grown its customer base by 40 per cent in 2020, the proportion of Gupta-linked companies in its loan portfolio has fallen from the 9 per cent level it was at in 2019. Gupta has also been able to refinance some of his loans with government guaranteed debt during 2020.
Gupta continues to believe his green steel agenda in Europe will be rewarded amid the big push by governments to decarbonise. The ongoing strength in the iron ore price is also helping him at Whyalla, as is the recent recovery in steel prices.
Bloomberg claimed in August that one Greensill’s German subsidiaries, Greensill Bank, had been probed by the country’s financial regulator BaFin, amid concerns it was too heavily exposed to Gupta-linked companies.
“No,’’ Greensill says curtly when asked if the claims are true.
“We have regular and constructive dialogue with all financial regulators, including the German regulators.” The Bafin has been under pressure this year following the collapse of payment processor, Wirecard.
Europe’s regulatory body, the European Securities and Markets Authority, issued a report last month criticising the BaFin for allowing Wirecard to defraud investors for years.
One of the casualties of 2020 has been Greensill’s fleet of private planes — two Piaggios, a Dassault Falcon and a Gulfstream 650 — which its board has decreed that the company must sell.
Greensill denies that the sale decision was imposed upon him.
“It was a joint decision. I am a material shareholder. My interest is in ensuring we deliver for all of our stakeholders, including our shareholders. If parting with a couple of planes is good for the value of our company, you can sure I will be lined up there,” he says.
“I don’t think it was an extravagance. But there is a perception point there. We need to prepare for what the world and the market expects of us as we become a public company.”
Greensill also dismisses speculation the big four accounting firms have been reluctant to take on the audit of his company ahead of an IPO, noting “all of them do work for us today”.
“We are planning to appoint a Big 4 firm as our auditor in the coming year,’’ he says resolutely, noting changes will be made to the mix of tax and consulting advice provided to the company to avoid strict conflict of interest rules for auditors.
The Australian Taxation Office has also had Greensill in its sights, winning a court ruling that a Greensill family trust owes tax on gains from the sale of shares in Greensill Capital for gains of more than $55m between 2015 and 2017.
Of that amount, Greensill claims $25m was intended for employees to the company as “a substantial gift” in light of the company’s success. Greensill has appealed the case to the Federal Court, which will be heard in February. If it loses it will appeal to the High Court.
“It seems unfortunate that the ATO seems to want to penalise entrepreneurs that want to give equity to their staff,’’ Greensill says.
“It is regrettable that would be the case. People take it up in the public arena as though I am trying to dodge tax, which couldn’t be further from the truth. I was trying to give equity to my staff and that equity is now worth hundreds of millions of dollars.”
‘Let’s make sure every day counts’
The controversies of 2020 for Lex Greensill have been far cry from two years ago when the dual citizen of Australia and the UK became an overnight billionaire and was awarded a CBE by Prince Charles for services to the British economy.
Greensill has advised both Downing Street and the White House on their supply chain finance initiatives in recent years and counts former prime minister David Cameron as a friend and trusted adviser.
“The growth of our business means there are some people who don’t have me on their Christmas card list anymore. That is the nature of building a disruptive business. We take that in our stride,’’ Greensill says.
He believes both the Prince and Cameron remain close confidants and unwaveringly supportive.
“The truth is they have been through a similar experience where they wanted to make change and it isn’t always ridiculously popular. It is more a case of comparing scars as opposed to them posing hard questions. You are not seeing that negative publicity reflected in our numbers, given the growth in our business in revenue terms this year will be the strongest ever,’’ he says.
In January former Australian foreign minister Julie Bishop joined Greensill as a Senior Adviser via her consulting firm Julie Bishop & Partners.
She instantly showed her worth, arranging a meeting for Greensill on the sidelines of the World Economic Forum in Davos with Cameron and Australian Finance Minister Mathias Cormann.
Greensill wanted to pitch his wages on demand offering to be used by the Australian public service.
The Australian subsequently revealed that in a briefing note for the meeting, officials from Cormann’s department referred to the Greensill product as “economically similar to payday lending” before noting the costs were born by the employer, not the employee.
Greensill says he was “surprised and disappointed” by the description.
“And the person (the bureaucrat) who wrote it was simply wrong. When we bought Earnd in Australia, for example, the next day we waived all of the fees that had been commercially negotiated for employees to pay and we made it free for everybody. I’m not sure how being able to be paid for free every day is economically similar to payday lending. People make mistakes, I guess,’’ he says.
While the government is still to take up Greensill’s proposal, the Cormann meeting revealed the strings that Bishop could pull.
Greensill says she was hired because “we were looking for someone who could chair our business in the region who knows their way around the region and could provide support and leadership to our teams.”
“Julie has done a fantastic job in that regard. The truth is I can’t spend as much time in the region as I did before so Julie has stepped into those shoes. Her counsel has been very good not just for me, but more broadly, most notably for our young people. It is part of the uplifting of our governance and to provide counsel,’’ he says.
In October Greensill also hired Hewlett Packard Enterprise chairman Patricia Russo as a senior adviser, and Standard Chartered executive Tracy Clarke as a director to further beef up its governance ahead of an IPO.
Greensill is now looking forward to the year ahead, likening the post COVID-19 period to the years following the Spanish flu pandemic at the end of World War One.
“As we came out of that period we saw an exuberance of people who didn’t know how long they would be around. Which is what we have seen a bit through COVID-19 — we are saying ‘This might take us out so let’s make sure every day counts.’ Tie that together with the investment boom we are going to see in infrastructure and energy. I think those things combined mean that we may well have a five-year period that is truly unique in terms of excitement, growth and opportunity.
“That makes me pretty excited about the future,’’ he says.
But the most important learning for Lex Greensill, as the storms have raged around him in 2020, has come at home.
He joked earlier this year that for the 20 years he had know his wife, they had spent no more than six successive weeks together because of his punishing global travel routine.
“I have a much improved relationship with both my children and my wife. There is nothing like being able to put your kids to bed most nights to change the relationship,’’ he says of his COVID-induced UK lockdown.
When it comes to things that really matter in his life, Greensill looks back on 2020 as being a real high point “as I have never spent such quality time with the people I love.”
“The lowlight is I haven’t been able to get home and see Mum and Dad and Pete. He has a little baby boy now. So I get lots of pictures from the farm because we have been doing lots of things there,” he says.
“I am now itching to get home and play with some of the new toys that Pete has bought while I have been away.”
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