Denel unable to pay back R290m debt owed to Joburg - Herman Mashaba

Mayor says Gupta-linked Regiments Capital placed the money, unsecured, with the SOE

City funds exposed to State Capture at hands of Gupta Associates

8 June 2018

Yesterday, I was advised of how Gupta linked associates, through Regiments Capital, have placed City funds at risk through unsecured lending to Denel, a state owned company, to the tune of R290 million.

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.

In 2012, the City of Johannesburg, under the leadership of Parks Tau, was alleged to have rigged a large tender in favour of Regiments, a Gupta-connected empowerment firm, to manage this sinking fund.

Investigative journalists at the time, alleged that the firm was also said to be enriching the wife of former Mayor, Parks Tau, whom 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 Regiments bid was arguably the most expensive out of 11 competitors, including large banks and specialist fund managers, who were disqualified.

The City has now been alerted to the fact that Regiments Securities, acting as middle-man, arranged a private placement of R290 million from our sinking fund (managed by Regiments Capital) to Denel. Due to the manner in which Regiments committed this money to Denel, as a private placement, the City’s funds are essentially unsecured.

This money was meant to mature on 10 June 2018, however we have now been informed that Denel is unable to honour this payment due it its own financial issues.

Last night, together with senior City officials, I held a telecon with Minister of Public Enterprises, Pravin Gordhan. I am confident that the Minister, along with the new board of Denel, are doing everything possible to restore stability in this company, following crippling challenges as a result of state capture at the hands of the Gupta family and its business associates.

Of course, it is deeply disturbing to now find out that City funds have been placed at risk in this process and it is extremely difficult to dissociate Regiments from Gupta influence given the fact that Eric Woods was part of its leadership at the time.

Gupta links to Denel have been well documented in the media following the #GuptaLeaks.

I am further buoyed by a letter received from Minister Gordhan this morning. The City intends engaging Minister Gordhan and his department in good faith over the next few months, and following assurances by the Ministry, we are prepared to roll over this debt for a few months as this Minister, his department, and the new board of Denel, work to stabilise this entity.

Given the importance of the City’s sinking fund in ensuring that the City is able to honour repayments for loans, I have further instructed the City’s Finance Department to conduct an urgent due diligence to ensure the security of investments in our sinking fund.

Since entering office as the Executive Mayor of Johannesburg, my administration has been plagued by challenges inherited from the previous administration in our City. One of the largest, being the deep rooted corruption which had become a norm in the City.

While the previous administration, under the leadership of Park Tau, turned a blind eye and continuously denied these allegations, my administration has already exposed fraud, corruption, theft and maladministration to the tune of R18 billion.

I am committed to restoring moral and ethical leadership in Johannesburg.

While noting the risks these latest developments pose to the City, I believe it is essential to openly communicate these facts with the public.

Hiding the truth was the expertise of my predecessor, however I am committed to honest and transparent leadership and it is vital that we bring both our residents and investors into our confidence.

The new administration in the City will act with haste to ensure its finances are protected and we maintain investor confidence.

Statement issued by Cllr Herman Mashaba, Executive Mayor, City of Joburg, 8 June 2018