Chief executive of the Development of Wales, Giles Thorley, has defended his organisation’s decision-making process over a loan it made to a company that provided £200,000 to Vaughan Gething’s successful First Minister leadership campaign.
Last year the development bank, which is wholly-owned by the Welsh Government, provided a five-year repayable loan to Neal Soil Suppliers, a company within Cardiff-based Dauson Environmental Group, owned by entrepreneur David Neal. Mr Neal, through Dauson, provided two £100,000 donations towards Mr Gething’s First Minister leadership campaign.
The First Minister, who at the time of Dauson receiving its funding of £400,000 in February 2023 was economy minister overseeing a portfolio that included the development bank, has highlighted that ministers have no operational say in the investment decisions of the publicly-owned bank.
The loan to Neal Soil Suppliers , which was first approved in the summer of 2022, was for the sole purpose of acquiring a solar farm. The Development Bank of Wales, and its predecessor Finance Wales, in total has provided the group four loans, of which two were repaid in full with interest.
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As well as the latest loan, the group also secured funding, along with more than 1,300 SMEs from across Wales, from the Welsh Government’s £100m Covid support loan scheme. It provided funding of up to £250,000 for eligible businesses and was managed on behalf of the Welsh Government by the development bank. Loans issued had six-year repayment profiles. The Covid loan to Dauson is on track to being repaid.
In 2013 Mr Neal was prosecuted for illegally dumping waste at a conservation site on the Gwent Levels. Four years later he was prosecuted again for not removing it.
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Mr Thorley, in giving evidence into a review of his organisation by the cross-party Senedd economy, trade and rural affairs committee, was asked by Labour MS Jenny Rathbone whether due diligence on the £400,000 loan took account of Mr Neal’s criminal conviction for fly tipping at a site of special scientific interest.
Mr Thorley said: "I don’t have enough detail on how much information was provided in relation to him specifically, but as a customer they have borrowed money from the development bank and its predecessor Finance Wales in the past and two of the four loans have been repaid in full... and each loan was looked at on their merits.”
Tory MS Samuel Kurtz asked Mr Thorley if he was confident that the development bank’s due diligence was up to “scratch” to ensure those eligible for finance didn’t have previous convictions for environmental offences.
Mr Thorley said: "This wasn’t a green business loan which he received to be clear, but yes it is a perfectly valid point. We do reasonably extensive due diligence and there are some limitations on what we are allowed to find.
"We don’t do CRB (police) checks on individuals in most cases, but in some cases we might be appointed to. The specific issue we are looking at is lending to a business and those businesses that he (Mr Neal) ran and still does. They were businesses that had borrowed before and had successfully repaid the money.”
Mr Kurtz pressed further: “Does this saga then want you to look into your own due diligence so that something like this doesn’t potentially happen again?” Mr Thorley said: “This situation (donations to the new First Minister) has been in the public domain for several months and we had a long consideration about it, for example was there any way that we could check whether businesses had made political donations in the past and to what extend we could restrict the use of the money, but in this instance the use of the money was very specific.
"We have a charge (financial) over the solar farm as part of the package when we lent, but we are always looking at improvements in the way that we operate."
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”Mr Kurtz responded: "Do you think the integrity of the Development Bank of Wales has been called into question by what has happened in the last couple of weeks?”
Mr Thorley replied: “No. The loan was approved in the summer of 2022 and it was funded in February 2023 and the piece of land (solar farm) was purchased well before there was any inkling of a leadership contest.”
Following the committee hearing the development bank said in a statement: "The assessment of the loan to Neal Soil Suppliers in 2023 included an ESG (environmental social and governance) review.
"The review noted that the group is engaged in highly regulated waste processing activities and had the necessary permits in place. We also considered the company’s commitments to recycle over 75% of materials handled, and to increase the use of solar to power its operations. The purchase of the solar park funded by the loan was part of this long-term strategy.”
Labour MS Hefin David, who supported Mr Gething in his leadership campaign, asked the chief executive to reaffirm the operational independence of the bank and that Welsh Government ministers “don’t have any influence over individual loan decisions.”
Mr Thorley said: “Yes, absolutely. In the time I have been at the organisation for eight years at no stage have I ever been contacted or had any pressure been put on in relation to a loan or any form of investment we have made.”
Mr Thorley agreed when Mr David added “So, it would be inconceivable for a minister to have that kind of influence?”
The development bank’s group investment director, Mike Owen, said: “Even when customers complain directly to Welsh Government to exert influence on us, there has never been any pressure from the Welsh Government to do a deal that we had turned down.”
Mr Thorley said the development bank’s remit was to lend to Welsh SMEs where there was market failure with no appetite to do so from private banks. While a ‘gap funder’ it still lends at market rates.
When asked why other lenders didn’t provide the funding to Neal Soil Suppliers to acquire the solar farm, Mr Thorley said: “One of the areas where there is a gap in funding is in the size of loans.
"We find it increasingly the case that banks will only lend to businesses in excess of £500,000 and in some cases even higher. Our average loan size is around £260,000 .
" We are in a marketplace where we are dealing with very small companies that need relatively small amounts of finance, but that market is not catered for in the private sector. And to the extent that it is, it is predicated on an extraordinary plain vanilla approach through algorithmic bank lending. You won’t have at that level a bank manager to talk to about a commercial enterprise.”
Dauson Environmental Group comprises Neal Soil Suppliers, Atlantic Recycling, Cardiff Demolition Co Ltd, Neal Aggregate Suppliers, Neal Remediation, Bluefield Land and Resources Management (海角视频).
In its financial year to the end of June, 2023, its revenues climbed to £56.1m from £38.4m year earlier. Pre-tax profits were £8.4m, up from £4.8m.