By Eli Greenblat, Senior Business Reporter – The Australian
Lex Greensill, the chief executive of London-based bank Greensill Capital, says the finance sector is ignoring the cost of capital and other business costs that is wrapped up in the agricultural sector and that his company will help forge a much more efficient and cost effective system to finance complex supply chains.
Speaking at The Australian’s Global Food Forum in Sydney this morning, Mr Greensill also called on the nation’s $2.7 trillion superannuation industry to divert more funds to the agricultural sector rather than just betting on equities, which would support Australian businesses.
There was also a hit to the “people in Basel’’ who set the myriad rules for the international banking and finance industries, pushing through a range of lending requirements and capital requirements, saying they had little understanding of the forces at play on the farms.
He told the forum that it was “extraordinary” that the nation’s superannuation sector was betting on shares instead of feeding capital into growing businesses, joining a growing chorus of voices from the investment community for the super funds to dial down their obsession with the sharemarket.
“It seems to me extraordinary in a country like this where we have an amazing superannuation scheme that superannuation funds want to speculate on equities rather than actually delivering capital to growth businesses and so we have been able to educate investors around the world to invest in this space and support the delivery of low cost working capital to growth businesses,’’ Mr Greensill said.
“I think though there are some structural challenges that superannuation funds have that are not risk adjusted … and we are going to have to help them move passed that to enable them to participate in supporting Aussie businesses.’’
Mr Greensill speaks with some authority on the subject of finance. His family owned Greensill Capital is now worth more than $2 billion after receiving a capital injection of more than $300 million from a global private equity giant in July last year. It has become a key player in the disruption of the global financial services sector by using technology to usurp the traditional role played by the big banks.
It is the largest issuer of bonds in Europe. Greensill Capital, which charges a fee and an interest rate for providing the finance, is now the second largest player in global supply chain financing behind US investment bank Citi.
Mr Greensill, whose family still run a farming business in northern Queensland, was also critical of the lack of vision by traditional banks and they framework they have traditionally used to finance agricultural businesses.
“As we think way about the way the agricultural sector in Australia is financed, it really is a history of that finance extended largely based on the value of fixed assets and someone who is involved in agriculture is we all know that there is an enormous amount of working capital tied up in our businesses that banks — and to be fair the Basel committee that write the rules on banks — just don’t understand that degree of capital and how much is tied up in growing a sugar crop or a sweet potato or watermelon on our farm.
“It is a significant number relative to the cost of real estate and yet the finance sector really ignores much of that, and so I guess to put it bluntly we see an ability to deliver credit to farmers and those in the supply chain based on the future of the flows that are coming in that working capital that is trapped in the space.’’
And these models could displace the banks.
‘’Banks, maybe they are history because they provide credit based on history, maybe the royal commission kind of told us that, and I think we think we extend credit based on the future. And looking forward that’s why I think we are part of the future.’’
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