Self-described \u201crenowned industrialist\u201d Sello Mahlangu and his \u201cpowerhouse\u201d investment group, Southern Palace, stands accused of securing funding from the Industrial Development Corporation (IDC) under false pretences \u2013 and then misappropriating the money meant to recapitalise Genrec, a black-owned champion in the heavy engineering industry.<\/p>\n
Like this story and want more? AmaBhungane newsletter subscribers get unique insights on each investigation directly from our reporters. Don’t miss out. Sign up<\/a>.<\/em><\/i><\/p>\n The alleged scheme is detailed in a summons the IDC issued from the Johannesburg high court on 27 February.<\/p>\n At issue is Southern Palace\u2019s acquisition of Genrec from construction conglomerate Murray & Roberts in May 2018.<\/p>\n The IDC claims that it was tricked into lending Genrec R185-million to recapitalise the business when Southern Palace took control.<\/p>\n The ruse allegedly involved Southern Palace pretending to fulfil a key condition for the IDC funding by committing R20-million of its own money to Genrec first.<\/p>\n Southern Palace provided an auditor\u2019s certificate as \u201cproof\u201d of the payment, but the certificate actually \u201crelated to a payment between different entities and for a different purpose\u201d, the IDC states in its particulars of claim. If not for this, it would never have provided funding in the first place.<\/p>\n Even more surprising is the use the IDC alleges the money was put to.<\/p>\n The IDC funding took the form of R125-million loan and a separate R60-million revolving credit facility that were granted to Genrec on 16 February and 8 March 2018 respectively.<\/p>\n Of the first R125-million Genrec allegedly used only R20-million as intended.<\/p>\n Of the rest:<\/p>\n Southern Palace was established in 2002 by husband-and-wife team Sello Mahlangu and Gladys Matitoane, who are the controlling shareholders, and business partner Lucas Tseki, who owns 15% of the group.<\/p>\n *Click on the Evidence docket to read the IDC summons.\u00a0<\/strong><\/em><\/p>\n The three allegedly took the abuse of IDC funding to a new level when it came to the separate R60-million revolving credit facility. The IDC was told that this money was for working capital so that Genrec could fulfil a large contract it had landed to supply low profile mining vehicles to a client called CMTi.<\/p>\n Instead the money was \u201cnot applied for the stated purpose at all\u201d. A relatively small portion of it, R2.7-million, was instead used to buy 51% of CMTi, the supposed customer.<\/p>\n Then came the most audacious part of the alleged misappropriation of the IDC money. Genrec paid R17-million to the \u201cproxy\u201d company Acutucel.<\/p>\n From there the money was used to, among other things, buy a \u201cluxury Bentley vehicle\u201d and pay R1.7-million to Mahlangu and his wife.<\/p>\n There was also a cash withdrawal of R500\u00a0000 from the Acutucel account, says the IDC.<\/p>\n All of these assertions apparently follow the commissioning of an investigation, although the IDC has refused to comment on the case or the transactions at all.<\/p>\n A spokesperson told amaBhungane the case was at a \u201csensitive\u201d stage.<\/p>\n AmaBhungane had received an early tipoff in relation to this transaction last year where it was alleged that a senior IDC executive was facing a disciplinary process after failing to declare a conflict of interest when it was decided to fund Southern Palace.<\/p>\n At the time the IDC provided only a vague response to questions.<\/p>\n AmaBhungane has established the executive has since left the IDC\u2019s employ.<\/p>\n In May this year, two months after the IDC issued summons, Genrec was put into business rescue, a procedure which places a moratorium on claims against the company \u2013 including the IDC\u2019s.<\/p>\n That moratorium does not apply to Southern Palace (which signed surety for the loans), or to the three Southern Palace directors, or to former Southern Palace group operating officer Sicelo Harvey Buthelezi, who signed the IDC loan agreements representing Genrec.<\/p>\n Business rescue practitioner Lebogang Mpakati told amaBhungane: \u201cYes there is a moratorium on the litigation against Genrec but the IDC can still go after SPG [Southern Palace Group] and the others, which is what they are doing.”<\/p>\n The alleged front for Southern Palace\u2019s owners, Acutucel, is a shelf company that got activated on 13 April 2018, slightly more than a month after the IDC funding was secured.<\/p>\n It initially had three directors. One is Elvis Maledu, the personal assistant to Mahlangu.<\/p>\n Another initial director who soon resigned was Nala Mahlakoana, also an employee of Southern Palace.<\/p>\n The third director, who is still listed as such, is Sinayo Shabangu, who is or was an executive for business development at Genrec, according to the company\u2019s website.<\/p>\n Only Mahlakoana responded to messages. He said he was \u201cnot certain\u201d what the function of Acutucel was \u201cas I [was] only a director for a short while. [I] wasn\u2019t a director at trading stage\u201d.<\/p>\n He referred amaBhungane to Southern Palace\u2019s lawyers for further clarification.<\/p>\n Ian Levitt, an attorney working for Southern Palace and its directors, however denied that Acutucel had anything to do with Southern Palace.<\/p>\n \u201cSPG does not own or control Acutucel. SPG has nothing to do with Acutucel whatsoever. The IDC allegation is untrue,\u201d he said by email in response to amaBhungane\u2019s questions.<\/p>\n \u201cElvis Maledu is in the employ of Southern Palace. He has no relationship with its directors\u2026 Nala Mahlakoana is in the employ of Southern Palace. Southern Palace has no knowledge of any relationship between Mr Mahlangu and Nala Mahlakoana,\u201d Levitt said.<\/p>\n Levitt also specifically denied the IDC accusation that Southern Palace used an irrelevant auditor\u2019s certificate to \u201cfool\u201d the financier into providing Genrec with funding.<\/p>\n In terms of its funding agreement Southern Palace was meant to \u201cintroduce shareholder funds\u201d of R20-million which would capitalise Genrec and bolster the business\u2019s viability, the IDC claims. This was meant to demonstrate that Southern Palace was invested in the business\u2019s success and willing to risk its own resources.<\/p>\n The auditor that provided the contentious certificate is Thabo Mabotsa of Andisa Chartered Accountants.<\/p>\n He told amaBhungane the certificate was his authentication of a real payment, but for another transaction.<\/p>\n It reflects R20-million paid by a Southern Palace subsidiary called Concor to Murray & Roberts as part of the purchase price for Genrec.<\/p>\n This was completely different from what the Southern Place deal with the IDC called for, which was that Southern palace \u201cintroduce shareholder funds into\u201d Genrec for Genrec\u2019s use.<\/p>\n This obvious distinction lends credence to the allegation that there was collusion between Southern Palace and an executive inside the IDC. Either that or the funder displayed enormous negligence.<\/p>\n Nevertheless, the IDC is asking the court for a far-reaching order to enforce its claim against Genrec and Southern Palace.<\/p>\n It wants to hold the three founders of the group as well as Buthelezi personally liable for the debt due to their allegedly fraudulent conduct.<\/p>\n That total debt is R186.5-million plus interest calculated from the IDC\u2019s initial notice of indebtedness to Genrec on 4 November last year. The revolving credit facility was slightly overdrawn, leading to the capital figure being larger than the face value of the IDC loans.<\/p>\n On top of this the IDC wants the four declared delinquent directors \u201cin perpetuity\u201d.<\/p>\n This is a severe sanction allowed by the Companies Act that effectively means the four serial dealmakers, all of whom hold multiple directorships, will lose their ability to act as directors of any company.<\/p>\n As far as could be established the directors and Southern Palace have yet to file a response to the IDC summons and Levitt told amaBhungane he was not authorised to answer questions about it.<\/p>\n In an advertorial published on 24 August 2018, Southern Palace described itself as a \u201cblack industrial powerhouse\u201d and its chairman-cum-founder Mahlangu as a \u201crenowned industrialist\u201d.<\/p>\n Mahlangu appears have a background in ANC security. According to an online profile he was appointed in 1994 to help manage the \u201crationalisation, change and amalgamation\u201d of the police and defence agencies in South Africa.<\/p>\n In the past he has enjoyed significant support from both the IDC and the Public Investment Corporation (PIC).<\/p>\n In 2003, the IDC funded a company of which Mahlangu was the controlling shareholder to buy 25% of Reclam, the scrap and recycling giant.<\/p>\n\n
The \u201cproxy\u201d<\/h5>\n
The certificate that \u201ctricked\u201d the IDC<\/h5>\n
\u201cPowerhouse\u201d<\/h5>\n