Greensill Gonzo? – Political Questions Need To Be Asked

Yesterday, we detailed the rise an rapid fall of Lex Greensill – the so-called “king of supply-chain finance” – as major partners pulled funding amid questionable valuations in the illiquid investments the fund parlays in.

This morning, things have escalated as, following Credit Suisse and Softbank’s decisions to abandon the fund yesterday, Swiss asset manager GAM Holdings is closing the GAM Greensill Supply Chain Finance Fund to subscriptions and redemptions “as a result of recent market developments.” It added:

“A certain part of the [funds’] assets is currently subject to considerable uncertainties with respect to their accurate valuation.”

Greensill said it acknowledged “the decision” to “temporarily” suspend the funds, adding:

“We remain in advanced talks with potential outside investors in our company and hope to be able to update further on that process imminently.”

The Wall Street Journal reported earlier on Monday that the parts of Greensill in which Apollo is interested could fetch $100m.

But, as Bill Blain notes, the collapse of the supply-chain finance firm will come as little to surprise to anyone who has looked at their deals over the past few years.

When CSFB pulled its financing Greensill’s lines on the back of “uncertainties with respect to their accurate valuations”, it was clear Greensill’s trick of financing the Gupta’s empire was busted. 

Greensill Capital, a new lender that got backing from Softbank, is a fascinating tale. Greensill’s trick was to use supply-chain finance, receivables, and factoring to create very complex investment instruments that looked uber-secure and boasted high returns. I know of at least two major UK institutions that became heavily involved in financing Greensill’s deals via US investment banks. One of these investors, GAM, effectively imploded when the complexity and doubts on the Greensill loans were revealed. 

Much of what Greensill financed was linked to Gupta’s GFC Alliance – which is a many facetted and impenetrable network of related companies all owned by the Gupta family, including SIMEC in Singapore. I first saw the Greensill/Gupta deals a couple of years ago when a fund manager that had funded some of the Greensill deals asked me to take a look with a view to selling his large positions in them – the deals were truly extraordinary. 

As I examined the docs on a number of deals, including a hydro/aluminium smelter in Scotland that had remarkably obtained a Scottish guarantee, I grew increasingly concerned. There were also aircraft ultimately owned by Russian shell companies. I wondered how anyone had ever financed them, and came to the conclusion the promised returns had trumped proper due diligence. The reality is any fund manager will light up if you show them index stomping returns. 

The reality is any financing deal should boil down to simple facts. Is there going to be income to repay the debt, and are the assets secured. The Greensill deals were impenetrable in that regard, with assets apparently charged and pledged all across the complex Gupta/Simec family businesses. The same questions about security were being asked internally at the asset manager – GAM ultimately imploded on the back of deals originated by Greensill. 

Yet Greensill came up smelling of roses – perhaps having former UK prime minister David Cameron on board as an advisor helped? Now it’s finally crashed after Credit Suisse froze over $10 bln of funds linked to Greensill’s exposure to Gupta’s businesses. The German regulator has expressed major concerns about Greensill’s German bank’s Gupta exposures.

Moreover, the British Business Bank has now stripped Greensill of government guarantees related to massive loans made to Gupta businesses under the Coronavirus Large Business Interruption Loan Scheme (CLBILS). A few months ago I commented that it was extraordinary how a Gupta company with a tiny number of UK based employees had secured hundreds of millions in CLBILS financing.

I suspect the Greensill blowup is going to open a whole oil-drum full of political worms. I’m under no illusions about how the Gupta’s financed their firm – no sane investor would have gone near them with a 10 mile long bargepole. Yet, politically connected Greensill grew a whole financing business on the back of it… 

I’m also intrigued by the Scottish connection – at one stage I was assured by Greensill executives there would be a second Scottish Government Guarantee on the Aluminium smelter in Kinlochleven once a new wheel making business was established. The original deal was financed on the back of Scottish government guarantees on the back of payments from the Gupta owned smelter for power from the Gupta owned Hydro scheme. Does that strike you as slightly suspect?

The story of Aluminium smelters is famous in Scotland as a tale of industrial decay: “Lochaber No More” as the Proclaimers sang. 

The Gupta’s bought the Kinlochleven hydro and smelters in 2016, using £300mm plus of Greensill funding and a 25 year Scottish Government guarantee. It promised of thousands of jobs from a wheel factory it promised to build. Gupta sold it in November 2020 for £150mm. Few jobs have been created. There is no wheel factory.

If questions are going to be asked about political connections and how the Gupta’s and Greensill got away with CLBILS funding, it may also be worth asking what Scotland’s government knew – I was never ever able to trace down details of how the Scottish Government guarantees were determined. 

I wonder if the local MP can help – just happens to be Ian Blackford, the leader of the SNP in Westminster.