Lex had attracted some loyal staff. He had some heavy-hitting financial backers. He had developed the blueprint for supply chain finance over the decade he had spent at OzEcom, Morgan Stanley and Citi. He’d even begun to make deep connections inside the UK government. But he wasn’t making much headway with Greensill Capital.
A handful of big banks sell trade finance, including Citigroup, HSBC and Italy’s UniCredit. But there is a reason they only offer it to their biggest corporate clients. Trade finance, including supply chain finance, doesn’t make much money. Often, the banks do it as a kind of loss leader – a business that doesn’t make sense on its own, and may even be loss-making, but which has some value because it builds a deeper, more profitable connection with the client. Few of the banks offer it to risky clients – smaller companies like start-ups, or companies that operate in industries where cash flow isn’t predictable. For the most part, that was the space where Greensill was forced to play. Lex wanted to join the big guns of global finance, but instead he was stuck with a series of misfiring deals.
One pair of related companies was important in Greensill’s story for years: Tower Trade Group and BSi Steel.
BSi is a South African steel company founded in 1985 by an enterprising industrialist named William Battershill. It started out selling discount steel products to farmers – unwanted pipes and other metal objects. Twenty-five years later, after several acquisitions and reinventions, the company claimed to be ‘one of the lowest cost large-scale steel distributors in Southern Africa’, and operated in Zambia, Botswana and several other countries in the region.
BSi was also struggling to deal with difficult conditions in many of its key markets, as the global economy floundered and demand for its products was subdued. Battershill needed to lower BSi’s costs. In 2012, he turned for help to Charles Reynolds, a Swiss-based British citizen from South Africa. Reynolds was a charismatic wheeler-dealer who had been in trade finance since the 1980s. Most recently, he’d operated a Hong Kong-based trade finance business alongside a smart, tech-focused New Zealander called Rob Barnes. Critically for what happens next, Barnes was also the founder and former CEO of PrimeRevenue, the technology company that Lex Greensill had relied upon to process invoices and payments for the Trade Receivable electronic Financing System (TReFS) programme at Morgan Stanley. Barnes had known Lex Greensill for years. Lex had even tried to hire Barnes to Greensill Capital. (A recurring theme at Greensill Capital is that Lex tried to hire every expert he came across – a smart strategy, though many, like Barnes, turned him down.)
Barnes was genuinely an expert in the modern forms of trade finance. He understood the technology well, and he understood funding and the value of trade credit insurance to the whole model. He wasn’t a salesman. But he knew a good one – Lex.
Tower Trade was a joint venture set up by Barnes and Reynolds with BSi. Its primary purpose was to provide cheap trade finance, mostly to BSi but in theory to other potential clients too. Lex provided the funding, about $23 million of it. He also got trade credit insurance, partly from the giant insurer AIG. Initially, the model operated as a straightforward supply chain finance programme. It did exactly what Lex, Reynolds and Barnes had said it would, paying invoices more efficiently and lowering BSi’s costs. But it didn’t make much money.
Pretty soon, the relationship steered into more complex, and potentially more lucrative, waters. Greensill, Tower Trade and BSi invested in a mine in Chile. Another entity related to Tower Trade and BSi, called Sentinel Bridge, agreed to buy iron ore from the mine and hold it until there was a viable amount to ship. Sentinel had a separate contract to sell the ore to a third party. Greensill funded some of the mine’s start-up costs and funded Sentinel’s purchase of the ore.
BSi’s accounts explain what happened next: ‘The venture proved to be a costly failure due to a series of extraordinary events, including, inter alia, iron ore price drop of more than 60%, our only viable port damaged by a storm and not repaired to date, and finally, a spurious survey report by a world renowned survey agency, which led us to pay for 38,389 tons of iron ore that was never delivered to our stockpile.’
The mine was also implicated in an elaborate fraud, revealed in a filing made by the US Attorney’s Office in the Southern District of Florida. A Miami-based conman named Navin Xavier had used false information and forged documents to convince nearly a hundred investors to hand over more than $29 million for a stake in the same Chilean mine. Instead of using the money to mine the ore, Xavier and his wife spent lavishly on jewellery, luxury vehicles and cosmetic surgery. ‘Eventually,’ according to the US Attorney, ‘Xavier used new investor money to pay old investors in a Ponzi-like fashion before the scheme collapsed.’ In 2017, Xavier was sentenced to fifteen years in prison.
For BSi, Tower Trade and Greensill, the whole investment had been like a business investment disaster movie where everything that could go wrong did go wrong. The mine was eventually put into liquidation, leaving Greensill and Sentinel to pursue their lost funds through the bankruptcy process and a multi-year legal case. The result was that Sentinel owed Greensill about $4.5 million – which Greensill agreed to roll indefinitely at a rate of about 2.25 per cent. BSi wrote down its entire $2.5 million investment.
The Tower Trade joint venture was proving to be a major headache for BSi. Some of Reynold’s former clients, and their problems, were washing up in Tower Trade, and BSi’s board and management were struggling to understand what they’d become involved in. Referring to a $14 million disputed loan to a denim trading company, for instance, the accounts said that, ‘The flow of funds was extremely difficult to track’ and noted ongoing delays and rising costs. It was typical of an incredibly messy relationship. In 2017, BSi’s external auditor, Deloitte, said that a loan of about $15 million from BSi to Tower Trade might not ever be paid back and gave the company a qualified audit opinion – essentially one step short of refusing to sign off on the accounts altogether.
By then, Barnes had long since moved on. Greensill, though, was still there. Loans to Tower Trade and BSi would be a feature of Greensill’s business for years to come.
In those early years, Lex was often reduced to bottom feeding the riskiest clients and pushing the boundaries on what could viably pass through a supply chain finance programme.
In 2012, he arranged a supply chain finance programme with the owners of Griffin Coal, a giant mine more than 200 kilometres south of Perth in Western Australia. Griffin, which was owned by an Indian company called Lanco, would submit supplier invoices and Greensill would pay them. Griffin then had to pay Greensill back later. It was standard stuff.
By 2013, though, Griffin’s accounts showed that it had become entirely dependent on support from its Indian parent and the Greensill facility, according to a later Australian court judgement. The following year, Australian tax authorities froze all Griffin’s bank accounts due to the non-payment of taxes. The company was in deep trouble. Yet later the same day, Greensill transferred A$2 million to Griffin to pay the tax bill. This wasn’t a supply chain finance payment – it was a short-term loan to a financially troubled mining project to settle its problems with the tax authorities. If supply chain finance represented one of the safest, steadiest forms of corporate lending, this kind of transaction was just about the opposite.
Lex’s relationship with Griffin didn’t end there.
In April 2014, Lex told the mine’s managers that he planned to visit and would more than double the capacity of the loan facility from around A$30 million to around A$75 million. The managers were optimistic, but the additional funding never arrived. A little later, Griffin hired a small contracting company called Carna to provide staff to run the mine. In internal emails, Griffin’s bosses admitted that without Carna’s staff, the mine would not be able to produce any coal at all. Soon after, though, Carna also got into financial difficulties and blamed Griffin, saying the company was failing to pay its bills on time.
Lex’s solution to this was typical and established a pattern that he followed for years to come. Faced with a problem loan and a client that was in desperate financial trouble, Lex doubled down, entering a separate deal with Carna itself. Lex paid one of Carna’s own suppliers about A$9.7 million, and Carna agreed to repay Greensill A$10 million later. This didn’t solve anything at all. The flow of cash was sclerotic. Everyone involved was increasingly desperate for bigger and bigger loans that Greensill just couldn’t finance. Carna collapsed a few months later, in 2015, with debts of about A$70 million, including about A$10 million owed to Greensill.
(The disagreements dragged on for several years, with lawsuits flying between Carna, Griffin, Lanco and others. In 2021, an Australian court ordered Griffin to pay Carna A$5.1 million, a decision that a local MP described as a nail in the coal miner’s coffin.)
Griffin and the Chilean mine episodes should have flashed early warning signs to anyone looking at Greensill over the next few years. These were risky loans to vulnerable commodities companies. There were complex legal wrangles and convoluted financing structures. There were allegations of fraud and misconduct. There were borrowers who didn’t pay their bills. And when things went wrong, Lex’s instinct always was to double down on his problems.
He had a knack for being in the wrong place at the wrong time. Greensill was one of the lenders to Abengoa, a Spanish renewable energy and infrastructure company that ran into trouble in 2015. The company had gorged on about €9 billion of debt but was short of cash following an overly ambitious plan to expand around the globe. A supply chain finance programme arranged by Greensill had been one of the ways in which Abengoa’s overall debt level was hidden from investors. When the company collapsed, Greensill was among dozens of creditors left trying to recover millions of dollars of soured loans.
The collapse of UK construction and facilities management company Carillion with about £7 billion in debt in 2018 was one of the biggest corporate failures ever in the UK. Greensill wasn’t a lender to Carillion, but Lex had a cameo role in its ill-fated history. Lex had been prominent in the group of government advisers whose work had led to a broad push for UK companies to use SCF programmes. Carillion’s executives even met with Greensill before setting up their own ‘early payment facility’ – a version of SCF, which was central to the way Carillion’s debts were largely hidden from investors prior to the company’s demise.
TWO OTHER OF LEX’S long-term relationships that started in the early years of Greensill Capital were with Andy Ruhan and with Neil Hobday.
Ruhan was a British businessman and property developer. He had made a fortune from a series of big property deals – notably he’d been an early investor in data centres used by investment banks before selling out, and he’d then made more money buying and selling a chain of hotels. He flirted with tabloid fame in the early 2000s because of his flamboyant lifestyle. He drove racing cars and briefly sat on the board of the Lotus Formula One team. In 2002, the helicopter he was flying crashed in rural Hereford; Ruhan, badly injured, crawled through two fields to flag down a passing motorist. By the 2010s, his fame was in decline, and his personal life was also in freefall. In divorce proceedings, Ruhan gave his address as a yacht in the Mediterranean. His wife denied remarkable claims that she was questioned about a plot to murder him, while his lawyers denied that he was hiding money offshore to avoid giving it to her in a settlement.
Also in the 2017 divorce proceedings, the London court heard that Ruhan had once been ‘phenomenally rich’ and ‘a highly successful businessman’. And they heard that he claimed to be insolvent ‘to the tune of £2 million . . . as a result of virtually his entire fortune, some £200 million, being stolen from him in March 2014’ by a group of ‘treacherous’ fraudsters.
Even as his fortunes apparently took a nosedive, Ruhan continued working on various property projects. His reach extended from the UK to the Middle East and the US, though his deals were often entangled in complex, years-long litigation. Sometimes he employed Hobday, another property developer, though with a less spectacular record than Ruhan’s.
Greensill helped broker a lucrative property deal that generated a few million pounds in profit for Ruhan, and decent fees for himself too. He also got to know Hobday, who became a sort of deal originator for Lex, sniffing out companies that needed loans.
Lex’s network of well-connected backers was helpful, and he started to make inroads with big-name investors and with clients who wanted to borrow money. Pacific Investment Management Company (PIMCO), the giant California-based company founded by ‘Bond King’ Bill Gross, did its first transaction with Greensill in 2014. Lloyds Bank also worked with Greensill from about 2015, and had more than £1 billion invested in Greensill supply chain finance loans. Sometimes clients were brought on in part through Taulia, the payments platform. Taulia was a bit like PrimeRevenue. It had the technology to process payments and invoices and run SCF programmes. Lex was able to secure funding for those programmes from banks or big asset managers. Greensill and Taulia together were working with Vodafone, Huawei, General Mills and the German chemicals company Henkel, for instance. Sometimes these deals could involve processing billions of dollars in transactions.
These were impressive big-name clients, and impressive funding partners too. But it was all a bit of a mirage. This business rarely produced much in the way of revenue and even less in terms of profit. But that didn’t matter. While Greensill booked much of its revenue from loans to unknown smaller companies, projects and entrepreneurs, these deals with big businesses gave the firm the appearance of credibility and scale. It was as if there were two separate business models, mixed up together. One was a barely profitable blue-chip SCF business, and the other was making risky loans to financially troubled businesses. Nothing was straightforward.
Lex made some headway in Mexico after hiring Ricardo Ortiz, a trade finance specialist with connections in Latin America. Through Ortiz, Greensill was able to find a way into Pemex, the state-owned oil giant Petróleos Mexicanos. Pemex was struggling to deal with prolonged low oil prices and had pushed its supplier payment terms out from twenty days to 180 days. It was also seeking an SCF provider that could ease the pain for its suppliers. Greensill stepped up with a facility backed by the Mexican development bank Nacional Financiera (Nafin). The first transaction that went through the programme was a staggering $100 million with a single supplier. Soon other Pemex suppliers were asking to join the programme. Nafin and Greensill made $3 billion available to process these supplier payments. The deal was quickly lauded as a great success by Greensill’s executives. On a podcast with industry publication Rigzone, Roland Hartley-Urquhart gushed that Greensill was ‘very excited about the prospects in Mexico’, and that the deal with Pemex had revitalized small businesses in the Mexican oil industry. Greensill even won an award for one of the ‘deals of the year’ in influential trade finance publication Global Trade Review.
But the success didn’t last. Within a few months, it was apparent Greensill didn’t have the infrastructure or the technology to support such a large, complex programme. Its technology could only really handle a few suppliers at a time. Pemex’s suppliers began complaining to the company about problems with payments that were putting a strain on their business. Eventually the oil company stopped the programme.
Another especially striking episode revolved around an Asian mobile-phone technology distribution business called Dragon Technology. Dragon worked with a Silicon Valley smartphone company called Obi Mobiles that focused on emerging markets, especially in India and the Middle East. Both firms were backed by Inflexionpoint, a private equity firm co-founded by John Sculley, the former CEO of Apple and Pepsi-Cola Co. Since leaving Apple in 1993, Sculley had become an influential tech investor, helping to grow and sell several tech-focused companies.
At one point, Sculley said in an interview in the Indian press, the Canadian government had approached him to buy BlackBerry. He thought its business model didn’t work. There were too many staff and costs would be far too high. But it got him thinking about whether it would be possible to manufacture and distribute handsets much more cheaply.
The owners of Dragon and Obi planned to piggyback off Sculley’s name to build a powerful, more profitable rival to some of the cheaper smartphones that were already successful in emerging markets like India and China. Sculley brought in some of his former staff from Apple to help with design and managing the process. Dragon would make the phones cheaply in Shenzhen, China, and Obi would sell them in places like the UAE, Indonesia and East Africa. Obi executives talked about selling two million handsets in India alone in their first year, with a rapid expansion thereafter.
To support the companies’ ambitious plans, there was financing in place from HSBC.
Dragon’s backers at Inflexionpoint were also introduced to Lex Greensill through a former Morgan Stanley connection. Over lunch in London with Sculley and several other Inflexionpoint and Dragon execs, Greensill pitched his SCF product as an innovative, cheaper source of funding. Lex was charismatic, enthusiastic – and convincing. Dragon signed up for tens of millions of dollars in Greensill funding. The facility renewed every few months; because it was always rolled over, it was positioned like a term loan, not SCF. It was funded partly by Greensill itself and then syndicated out to banks and others. The whole thing was also protected by trade credit insurance from AIG.
But the project did not go to plan. AIG’s coverage of the Dragon deal had been short term, and the insurer decided not to renew it. They had seen defaults on several other Greensill transactions and some executives there were increasingly concerned about working with Lex. They felt he was pushing the boundaries of SCF. Their decision not to renew on Dragon was a big deal. It would mean the loan would be pulled too. Lex met with the AIG executives who had cut him off and asked about the coverage again. The insurance executives were clear – the coverage had ended. Lex’s face went ashen white. This was potentially catastrophic.
Dragon ended up filing for bankruptcy in Singapore in September 2016.
Lex was able to negotiate a settlement that meant Greensill didn’t follow Dragon into insolvency, but the incident was a sign of a much more significant long-term issue. AIG had seen several Greensill deals go wrong and had run out of patience. As the issues piled up, AIG resolved to cut all ties with Greensill. There were other insurers in the market, some with bigger trade credit insurance business than AIG. But Lex’s reputation for taking on more risk and more complex transactions was spreading.
Some of the insurance agents started to do their own deeper due diligence on Lex’s clients, asking Greensill to send over invoices and other documents to support the SCF programmes he’d set up. Sometimes all was OK. Other times, there were problems. Documents were harder to get hold of than they should have been. Sometimes there were problems with the invoices themselves. Lex was able to secure trade credit insurance for several more years, but his options were narrowing. Eventually, that would be critical to the demise of Greensill Capital.
At the end of December 2016, it was hard to imagine Greensill’s business going much further. There were some big wins, with well-known companies investing in Greensill loans and taking financing from Greensill too. But this business was not profitable. There had been a series of embarrassing and costly stumbles. The whole thing seemed to rest on the financial support of a small band of wealthy individual investors. The accounts showed Greensill had racked up cumulative losses of $123 million. The firm appeared to be headed the same way as many of its clients. And yet, the seeds of a completely different trajectory, at least in the short term, were already sown.