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RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

Forty years ago the South Australian town of Whyalla had a population of nearly 40,000. Today, it’s half that.

The town’s steelworks, one of the biggest local employers, has shrunk over the decades, as Australia’s economy adapted to global economic conditions.

But now they are on the brink of collapse, threatening not just the town’s livelihood but thousands of jobs across Australia.

Today, senior reporter for The Saturday Paper Rick Morton on the billionaire from Bundaberg, the steel magnate from Punjab and what their business deal means for Whyalla.

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Rick, can you start by telling me about Sanjeev Gupta. Who is he, and how did he come to be involved in the Whyalla Steelworks?

RICK:

So Sanjeev Gupta, he was born in Punjab in India, into a wealthy family of industrialists. And in 2009, he got into the steel business buying up plants in Africa and Asia. And he had a real interest in these kind of legacy industries, as well as renewable energy and ways to make it sustainable into the future.

And in 2017, he bought the Whyalla Steelworks, which was struggling again at the time. That's kind of a fundamental tension in Whyalla, as always, wondering about the future because they are so reliant on the steelworks in this town. You know, they are a town of about 20,000 people in South Australia, about four hours north west of Adelaide. And steel is their lifeblood. Industry is their lifeblood.

And at the same time, he kind of had these plans to buy Zen Energy from Ross Garnaut and create this massive solar farm north of Whyalla to power the Steelworks.

And he kind of brought them all together under this big company, which is his Gupta Family Group Alliance, the GFG Alliance, and the steelworks was losing hundreds of millions of dollars at the time. And Gupta seemed happy to wear those losses as he executed his vision for the plant, including constructing that 280 megawatt solar farm just north of Whyalla to help power it.

But now all of that is in jeopardy.

And it's a pretty fascinating story in terms of how we got to this point, because it involves a billionaire investor from Bundaberg and his ties to the owner of the Steelworks, Sanjeev Gupta. And not only did Gupta's companies employ, you know, 1,200 people in Whyalla, they employ 7,000 people across the country and the jobs of all of them are currently on the line.

RUBY:

OK, so tell me what happened to Rick, how has all of this come to to be on the brink of collapse?

RICK:

So Gupta's company, the GFG Alliance, was being bankrolled by another company, the investment fund, Greensill Capital. They were huge financial backers of GFG, and that's what allowed him to keep pouring money into the Steelworks.

So these two companies were very intimately connected in a financial sense. But last week, Greensill imploded.

RUBY:

Ok so this company Greensill, it was bankrolling Gupta’s plans for the Whyalla Steelworks. But what exactly is Greensill’s story?

RICK:

So for a long time, the company's owner, an Australian guy called Lex Greensill, was very happy to tell you his own version of this story, which was a classic country lad, made good kind of story.

Archival Tape -- Unidentified Reporter #1:

“It is the story of a farmer who built a billion dollar fintech.”

Archival Tape -- Unidentified Reporter #2:

“Founded by a Bundaberg farmer, Lex Greensill, his family are known for producing sugarcane and also sweet potatoes…”

Archival Tape -- Unidentified Reporter #3:

“Lex Greensill witnessed his parents struggle with delayed payment when he was growing up on the family’s sugarcane farm in Australia…”

RICK:

He's, you know, the son of a farming family in Bundaberg, about five hours north of Brisbane, where they grew sugarcane and melons. And Lex was kind of brought up understanding very much that farmers relied on supply chains.

Archival Tape -- Lex Greensill:

“For me the defining moment was growing up on a farm, not getting paid promptly for the production that my parents made which meant they couldn’t afford to send me to university..”

RICK:

And the fact that they had to deal with other suppliers in order to market their goods and get them into supermarkets and overseas.

Archival Tape -- Lex Greensill:

“And that kind of changes your perspective on the world. I guess working capital is not really something that when you’re a teenager you spend a lot of time thinking about, but it caused me to do that…”

RICK:

And that's when he kind of hit upon what appeared to be a revolutionary idea, although the concept is as old as human finance in general. And it was this idea that Greensill would specialise in what the business world calls supply chain finance.

And supply chain finance is essentially recognising that businesses have to do business with each other. But, you know, if you're a small to medium enterprise in particular, which is what Greensill was talking about growing up on the family farm, often you were owed money by much bigger companies. And those companies had, you know, up to 90 days, 180 days to pay those invoices. And that really restricted you in terms of money, cash flow. You needed cash flow to make sure that you could pay your own workers.

And so what Greensill decided to do was, that he would step in as the middleman and he would say, look, he would go to the big companies or anyone who owes money to their suppliers and say, I will pay the bill. If you give me a small discount, you can pay me back when the time is right. But what he did - in finance this is fairly common - but he took the debt that was owed by these companies, and he turned it into a security. So he securitised the debt. And that may sound a little bit gobbledigook, but the simplest analogy is that it's exactly what happened with subprime mortgages that spawned the global financial crisis. These were debts that were bad debts, but they were repackaged by investment funds and they were made to look pretty good to other investors.

And this works fine, for a while with some caveats. And, you know, the company had enormous success.

Archival Tape -- Unidentified Reporter #4:

“The company has now provided funding of over $163 billion during 2020 on behalf of more than 10 million customers”

RICK:

You know, Greensill had four private jets, including a 50 million dollar Gulf Stream. And in 2013, the company said that they engage in $143 billion worth of financing.

Archival Tape -- Unidentified Interviewer #1:

“Congratulations on securing this financing. How did this soft bank investment then come about? Give us the inside story.”

Archival Tape -- Lex Greensill:

“Well soft bank’s mission is to invest in the number one player in each sector…”

RICK:

And the way this kind of worked was he was really good, Lex Greensill, he was really good at making deals, and bringing in people who were either really well known or trusted. And in this case, he hired the former UK prime minister, David Cameron, as a special adviser. He was awarded the title of Commander of the British Empire, which is one of the country's highest honours.

And at the height of his success, Lex Greensill was worth about six billion dollars.

Archival Tape -- Lex Greensill:

“And it’s been a tremendous ride, but I should say that it’s been a ride that for me has been a 20 year journey as opposed to a, a kind of, an overnight one.”

Archival Tape -- Unidentified Interviewer #2:

“20 year journey meaning there’s been a lot to get the point to be a successful founder like this?”

Archival Tape -- Lex Greensill:

“Exactly.”

RICK:

But, you know, you make one big mistake in finance and that can vanish. And now he’s basically penniless.

Archival Tape -- Unidentified Reporter #5:

“Global financing firm Greensill has filed for insolvency in the United Kingdom and Australia, so what are the implications?”

RICK:

Administrators were appointed both in the United Kingdom and back home here in Australia, and that threatens to create a ripple effect that could ensure Gupta's company is dragged down as well.

Archival Tape -- Unidentified Reporter #6:

“They now need to find a new financier to basically bankroll them to keep going. So there’s roughly 7,000 Australia manufacturing jobs at stake here…”

RUBY:

We’ll be back in a moment.

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RUBY:

Rick, the collapse of Greensill is likely to have enormous consequences, including here in Australia. But, can you tell me what exactly happened? How did a company that seemed, on paper at least, to be so successful unravel so quickly?

RICK:

Well, it turns out that Greensill was a very good salesman. But the actual business, you know, the operating model of this company was a lot more rubbery.

And what he was doing was, you know, as I said before, very similar with what happened during the GFC, and we all know how that ended. You know, he took the supplier debts and he rebranded them as investment funds, as financial instruments. And Greensill funds its purchases of invoices by packaging them into short dated bonds that are then sold to investors such as banks, pension funds, even wealthy individuals.

But, and this is the key thing, most of Greensill's business was tied up with just one company, Sanjeev Gupta's GFG.

RUBY:

Hmm mm okay I think I see where this is heading.

RICK:

Right? And you know, The Financial Times has reported already that about 60 percent of those loans issued by Greensill were made to The GFG Alliance, and that started to raise alarm bells because an investment fund that is that exposed to the fortunes of one company is a huge, huge financial risk.

And Credit Swisse, who had backed these products with a $10 billion investment fund, well, four different funds actually worth $10 billion, suddenly was scratching his head, going, how the hell did we get in so deep with Greensill? And the moment they pulled those funds, they froze them and they said that they would not be taking anymore, you know, investments into it; around the same time, Germany's financial supervisory authority was investigating Greensill’s German arm, called The Greensill Bank, for what they described as accounting irregularities.

And on March 3rd, just gone, the regulator filed a criminal complaint against Greensill Bank's management for suspected balance sheet manipulation and also announced an immediate ban on Greensill from selling any assets or receiving payments due to an imminent risk that the bank would become over indebted. And basically, the regulator was worried that too much of Greensill’s assets were tied up, again, in the same source. Sanjeev Gupta.

RUBY:

Right. OK, so Rick, because Greensill was so financially intertwined with Sanjeev Gupta's company, banks and insurers who supported them, they panicked and they pulled the plug. And that is what led the company to file for insolvency. And that, in turn, is now threatening Gupta's company and by extension, the town of Whyalla.

RICK:

Yes. I mean, these things are long, cascading series of errors that, you know, affect everything in turn. And it's precisely that issue with Gupta's group. You know, around the world, there are about 50,000 jobs at risk just due to the Greensill collapse. It may well be a lot more, but this is mostly focused on the Gupta Family Group Alliance at the moment.

As we mentioned, 7,000 of those are in Australia. So it's causing really serious concerns here, particularly in Whyalla, which has a history of this kind of existential dread because, you know, they have been here before and they've been bailed out at the last minute. But they're wondering, you know, how long can this run continue?

RUBY:

Well, how long can it continue? How confident is Sanjeev Gupta of keeping his businesses afloat?

RICK:

Depends on which version of Sanjeev Gupta you read. So publicly, he's pretty optimistic. He's a salesman also. And, you know, he's not panicking yet publicly. But one of the big credit ratings agencies have downgraded his credit rating to junk bond status, suggesting there are really serious concerns about the company's long term viability. So there are two different accounts happening here at the same time.

And you know we’re a decade on from the global financial crisis. But we're still in a situation where these enormous personalities, these strong sales people can seemingly create these incredibly risky products, create this complicated web of international finance, that the rest of us are beholden to. And they're encouraged not not just the people who create these things. They're encouraged by people who ought to know better.

And that's where the real damage is in this particular story, because most of the people who invested money in Greensill get their money back, by the looks of things, except for the equity investors or the equity shareholders at the very beginning.

But most of the hurt here comes from the fact that this was a solution that was backed by financiers and investment people and people who are meant to understand this system that was wobbly from the get go. But those wobbles became more apparent with speed. And because of this, the system was allowed to grow the way it was jobs, real jobs, people working in steelworks, in, you know, renewable energy were suddenly and totally unbeknownst to them, reliant on this company that was founded on really soft sand. And that was never going to stay structurally solid for very long.

Of course, all very easy to say that with hindsight, I had not heard of Greensill until two weeks ago. And, you know, some of the press they got along the way was incredibly glowing all up until very recently when some of the veneer began to wear off, I guess.

And that's where the real hurt is here. It's not about investors losing their cash, but in this case, it's people. Working class, blue collar, middle income people who are getting absolutely trashed.

RUBY:

Rick, thank you for your time today.

RICK:

Thanks so much, Ruby.

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RUBY:

Also in the news today:

The government has confirmed the rollout of the AstraZeneca vaccine will continue as planned.

Some European countries are pausing their use of the vaccine, due to reports of blood clots in people who have been vaccinated.

But Chief Medical Officer Paul Kelly says he remains confident the vaccine is safe and effective.

And the Attorney General Christian Porter has signalled that he will delegate key parts of his job when he returns from leave on March 31.

Porter plans to stay on in cabinet, but his portfolio will be restructured so another minister can oversee the responsibility for courts, while he undertakes defamation action against the ABC.

I’m Ruby Jones, this is 7am, see you tomorrow.

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