Mashaba tables Report on Gupta associates’ attempt to capture City funds
Date: 30 August 2018
Today, the City tabled a report before Council on how alleged Gupta linked associates, through Regiments Capital, placed R290 million of City funds at risk through unsecured lending to Denel.
In 2013 and 2014, Denel issued senior unsecured notes with a maturity date of 10 June 2018.
Subsequent to the issuance of the notes, Regiments Capital, in their capacity as fund managers of the City’s sinking fund, purchased these notes to the value of R290 million for the fund. Denel’s crippled state has been well documented over the years, with links being drawn to Gupta associates using their proximity to power to loot the entity unabated.
As part of the City’s investment structure, the City utilises a sinking fund to pay back loans and investments made to the City, amounting to over R18 billion.
During Cllr Park Tau’s tenure as Mayor in 2012, the City of Johannesburg was alleged to have rigged a large tender in favour of Regiments (an empowerment firm with links to the Guptas) to manage this sinking fund.
Investigative journalists at the time alleged that the firm was enriching Tau’s wife, who is alleged to have become a multi-millionaire through links to Regiments.
Regiments was appointed to perform the fund management contract following a tender process seemingly tailored for it as the incumbent. At the time, it was alleged that the bid by Regiments was the most expensive out of 11 competitors. These included large banks and specialist fund managers who were disqualified from the bidding process
On the 5th of June 2018, the Department of Public Enterprises (DPE) informed the City, in their capacity as the shareholder representative in Denel, that Denel was not in a position to settle the notes on the due date because of serious liquidity challenges. In approaching the City, DPE’s objective was to negotiate a rollover of the investment in order to prevent Denel from defaulting while Denel stabilised its financial and liquidity position.
Various meetings and teleconferences were held separately between the City and DPE, and between the City and Regiments Capital, between the 6th and 8th of June 2018. This allowed the City to consider its options and determine how best to protect the City’s investment. These discussions culminated in a discussion between the Minister of Public Enterprises, Mr Pravin Gordhan, and myself.
During this discussion the Minister requested the City’s indulgence with a rollover of the investment in order to prevent Denel from defaulting while giving the entity time to implement a business rescue strategy aimed at improving its liquidity and financial situation. The Minister had agreed to implementing the following steps at Denel:
1. The appointment of a new, permanent Board for Denel in May 2018 with extensive experience aimed at strengthening governance and executive leadership.
2. The revision and submission of a Corporate Plan by the end of June 2018 to provide basis for Government to determine the fiscal support required by the company to secure its recovery.
3. An investigation of any allegations of corruption at Denel.
On the basis of Minister’s request, and in order to protect the City’s investment from capital loss, a decision was taken to rollover the investment for the requested period.
Further to this, I instructed the City’s Finance Department to conduct an urgent due diligence to ensure the security of investments in our sinking fund.
On the advice of the Minister, the City will also engage National Treasury and initiate an investigation into the circumstances surrounding the involvement of Regiments Capital in the Denel transaction.
To this end the City (through Group Forensic and Investigations Services) will be undertaking a broad investigation into the City’s relationship with Regiments Capital. The outcome of this investigation will guide the City’s relationship with Regiments Capital going forward.
I am confident that the Minister, along with the new board of Denel, are doing everything possible to restore stability in this company following the entity being gripped by state capture.
Following assurances by the Ministry and Denel, the City agreed to roll over this debt and bring the maturity date to 10th December 2018.
Since entering office as the Executive Mayor of Johannesburg, my promise has been to rid the administration from the deep rooted corruption inherited from previous administration.
I continue to ensure that citizens of this City grow in their confidence for the multi-party government to lead ethically with the needs of the residents being a priority.
Statement issued by the Executive Mayor of the City of Johannesburg, Cllr Herman Mashaba, 31 August 2018
