{"id":4584,"date":"2016-09-18T00:00:00","date_gmt":"2016-09-18T00:00:00","guid":{"rendered":"https:\/\/amabhungane.org\/amabhungane\/stories\/transnets-shady-gupta-loan-deal\/"},"modified":"2024-09-23T14:44:20","modified_gmt":"2024-09-23T14:44:20","slug":"transnets-shady-gupta-loan-deal","status":"publish","type":"post","link":"https:\/\/further.co.za\/amabwp\/transnets-shady-gupta-loan-deal\/","title":{"rendered":"Transnet&#8217;s shady Gupta loan deal"},"content":{"rendered":"<p>Picture:<strong><em>\u00a0<\/em><\/strong><strong><em>Salim Essa. (Delwyn Verasamy, M&amp;G)<\/em><\/strong><\/p>\n<p>Transnet paid a whopping R93-million without a tender to a small asset management firm \u2013 shortly after an opaque company led by a Gupta family lieutenant bought into it.<\/p>\n<p>The state rail company paid Trilian Asset Management to \u201carrange\u201d a multi-billion rand loan needed to buy locomotives.<\/p>\n<p>But the rationale for paying Trillian was as thin as the fee appears exorbitant, adding to the body of evidence that state-owned companies had been \u201ccaptured\u201d for profit by the Gupta family and associates. Gupta lieutenant Salim Essa is the sole director of the company that controls Trillian after it acquired 60% of the latter last year.<\/p>\n<p>But the controlling company\u2019s ownerhip remains opaque. Essa has not complied with an amaBhungane request to access its share register, even after the sheriff delivered demands two months ago. The Companies Act requires disclosure within 14 business days.<\/p>\n<p>Red flags include:<\/p>\n<ul>\n<li>The fee was for arranging a \u201cclub loan\u201d, which insiders say Transnet\u2019s own treasury could easily have arranged.<\/li>\n<li>Internally, Transnet justified the tender-free award to Trillian on the ground that it was the \u201csupplier development\u201d partner of another company already contracted \u2013 which the other company, Regiments Capital, denies.<\/li>\n<li>There is evidence that Regiments, not Trillian, did the work and was paid for it \u2013 meaning Transnet may have paid double.<\/li>\n<li>The chair of Transnet\u2019s board procurement committee introduced Essa to Trillian.<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><strong><em>Tender beginnings<\/em><\/strong><\/p>\n<p>The story has its roots in a tender Transnet issued in 2012 for 1\u00a0064 new locomotives to modernise its fleet.<\/p>\n<p>That same year the rail company appointed a consortium led by consultants McKinsey to advise on the deal structure and how to fund it. Regiments Capital was soon included in McKinsey\u2019s consortium and allocated the fundraising part of the work.<\/p>\n<p>Fast forward to 2014, when Transnet awarded the locomotive tender to four international suppliers; and mid-2015, by when it had raised over R30-billion in loans towards the R50-billion price tag. But Transnet needed more money.<\/p>\n<p>At the time, Trillian Asset Management was a small firm of investment professionals owned by four men, including brothers Rowan and Ben Swartz.<\/p>\n<p>Trillian worked with a second investment firm, whose principals included Stanley Shane. Shane in turn held two board appointments of note: at Transnet, where he chaired the procurement committee; and at a third investment firm, where his co-directors included Essa, the Gupta lieutenant. He was well placed to make the introductions that followed.<\/p>\n<p>A source acquainted with the deal says that when the Swartz brothers indicated they wanted to sell their 50% share in Trillian, it was Shane who introduced the buyer: an obscure shelf company named Lipshell 103.<\/p>\n<p>Trillian\u2019s share register shows that the Swartz brothers\u2019 shares were transferred to Lipshell on September 1, 2015. Company records indicate that Essa was registered as Lipshell\u2019s sole director later that month, backdated to just before the acquisition.<\/p>\n<p>Lipshell subsequently ramped up its stake to a controlling 60% of what became the Trillian group of companies, including the original Trillian Asset Management. It is Lipshell, now renamed Trillian Holdings, whose ownership Essa, still its only director, has failed to disclose.<\/p>\n<p style=\"text-align: center;\"><strong><em>&#8220;Club loan&#8221;<\/em><\/strong><\/p>\n<p>But back to Transnet\u2019s need for more funding: On November 23 2015 \u2013 not even three months after Essa bought into Trillian \u2013 the state rail company announced it had signed a R12-billion \u201cclub loan\u201d with Absa, Nedbank, Bank of China, Futuregrowth Asset Managers and Old Mutual Specialised Finance.<\/p>\n<p>Club loans are simpler than syndicated loans. In the latter a \u201clead arranger\u201d assumes the risk of placing parts of the debt with other lenders, and is rewarded accordingly. With club loans \u2013 and also in this case according to Transnet\u2019s announcement \u2013 each lender contracts directly with the borrower.<\/p>\n<p>Insiders told amaBhungane that Transnet\u2019s own corporate treasury, one of the largest in the country, could easily have arranged the club itself.<\/p>\n<p>Yet, Trillian invoiced Transnet R82-million \u2013 R93.5-million including VAT \u2013 and was paid in December 2015, the month after the loan was signed.<\/p>\n<p>An internal memorandum from Phetolo Ramosebudi, Transnet\u2019s treasurer, motivated paying Trillian as \u201cTransnet\u2019s originating and coordinating mandated lead arranger\u201d for the club loan.<\/p>\n<p>Explaining away the need for a competitive tender, it said: \u201cRegiments Capital was appointed as the 1064 locomotive funding advisor and had supplier development obligations to Transnet on their contract.<\/p>\n<p>\u201cOne of the SD [supplier development] requirements was the development of other black owned organisations in the industry. Trillian was the beneficiary of that initiative.\u201d<\/p>\n<p style=\"text-align: center;\"><strong><em>&#8221; &#8230;\u00a0<\/em><\/strong><strong><em>absolutely nothing to do with Transnet &#8230; &#8220;<\/em><\/strong><\/p>\n<p>But there is a catch. Until three months before, when Essa\u2019s company bought half of Trillian from the Swartz brothers, it was 100% white-owned and could not have qualified for supplier development.<\/p>\n<p>The Swartzes confirmed in an email: \u201cIn our entire time of involvement in Trillian and prior to this date whether as shareholders or directors we had absolutely nothing to do with Transnet [or] Regiments.\u201d<\/p>\n<p>And after the Essa takeover? Regiments executive Niven Pillay texted: \u201cTo confirm Trillian was never a supplier development partner to Regiments.\u201d<\/p>\n<p>Transnet did not respond specifically to questions about this contradiction, but said in a statement: \u201cRegiments \u2026 informed Transnet that it was in a process of restructuring its shareholding and that, as a result thereof, an integral part of the Regiments advisory business unit, assets, staff and certain contracts would be assigned ultimately to Trillian&#8230;<\/p>\n<p>\u201cRegiments also authorised Trillian to execute the work and services relating to the contract on its behalf.\u201d<\/p>\n<p>In short, Transnet held that Regiments, one of whose founding partners left to join Trillian, had ceded some of its Transnet work to Trillian as part of an internal split.<\/p>\n<p style=\"text-align: center;\"><strong><em>&#8220;Scope creep&#8221;<\/em><\/strong><\/p>\n<p>The Regiments founding partner and advisory unit left for Trillian on March 1 this year only \u2013 some three months after the club loan was signed. And it appears that Regiments did whatever \u201carranging\u201d was done.<\/p>\n<p>A banker involved in the club loan, who is not named as he was not authorised to speak to the press, said that Transnet had used Regiments, and not Trillian, as \u201cconsultant\u201d.<\/p>\n<p>And a trade finance publication, publishing details of the deal earlier this year, credited Regiments as Transnet\u2019s \u201clegal adviser\u201d on the deal, without any mention of Trillian.<\/p>\n<p>Regiments said in reply to questions that \u201cwe did the [fundraising] work that we were contracted to do and were duly paid\u201d. Due to \u201cscope creep\u201d, it asked for an additional fee, which Transnet turned down. It was unaware that Transnet had paid Trillian until alerted by amaBhungane.<\/p>\n<p>Trillian did not reply to specific questions, saying it felt they were \u201cadequately covered\u201d by Transnet\u2019s response. Why Trillian was paid at all remains unclear.<\/p>\n<p>The parallel case of SAA\u2019s contentious but cancelled appointment of unknown BNP Capital to raise R15 billion at the even more exorbitant fee of R225-million, or 1.5% of the total loan, is instructive. BNP\u2019s appointment was cancelled after SAA\u2019s treasurer argued that the department could have arranged the loan itself. In court papers, the SAA treasurer cited hypothetical quotes from two local banks: one said 0.5%, and the other broke it down to 0.1% for arranging plus 0.25% to 0.4% for \u201cparticipating\u201d.<\/p>\n<p>To participate means to be among the lenders oneself. But Trillian was not, meaning a bank might have provided Trillian\u2019s supposed service for as little as 0.1% of the loan value. This would have translated to a R13.7-million fee inclusive of VAT \u2013 a fraction of the R93.5-million, or about 0.7% that Trillian got.<\/p>\n<p>Essa and the Gupta family did not respond to detailed questions. Shane did not reply to questions via Transnet.<\/p>\n<p style=\"text-align: center;\"><strong><em>Transnet reply<\/em><\/strong><\/p>\n<p>Transnet said in its statement that any evidence of wrongdoing \u2013 of which it was confident there was none &#8212; should be reported and it would cooperate with a probe.<\/p>\n<p>\u201cTransnet is satisfied that the transaction advisory and execution support has delivered significant and measurable benefits to Transnet in terms of speed of business case approval and contract negotiation, transparency of processes, cash flow management, significant savings related to the cost of funding and mitigating financing cost risk.<\/p>\n<p>\u201cFurther, in terms of these processes, all service providers in this transaction were paid for services rendered after we had satisfied ourselves that all obligations were fulfilled in terms of agreed contractual scope. We have sufficient checks and balances to ensure we derive value from all contracts.\u201d<\/p>\n<p>\u201cTransnet assesses its need for specialised services on an ongoing basis and we award work to external parties based on these assessments, ensuring that there is no conflict of interest with Transnet employees.<\/p>\n<p>\u201cThe grounds for utilising external service providers may range from level of expertise\/skills required, to capacity to execute, etc. This is also enshrined within the Transnet procurement processes, which also prescribe the appropriate delegations or approval requirements&#8230;\u201d<\/p>\n<p><a href=\"http:\/\/www.amabhungane.co.za\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/amabhungane.org\/wp-content\/uploads\/2018\/03\/250x106.jpg\" width=\"250\" height=\"106\" align=\"left\" \/><\/a><em><br \/>\nThe amaBhungane Centre for Investigative Journalism produced this story. Like it? Be <a href=\"https:\/\/www.givengain.com\/cc\/amab\" target=\"_blank\" rel=\"noopener\">an amaB supporter<\/a> and help us do more. Sign up for <\/em><a href=\"http:\/\/amabhungane.us11.list-manage.com\/subscribe?u=760d27a4555f5cf43b2813a89&amp;id=b781dac27f\" target=\"_blank\" rel=\"noopener\"><em>our newsletter<\/em><\/a><em> to get more.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Parastatal paid Gupta associate\u2019s firm tens of millions for a service it could have provided itself or got for a fraction of the price.<\/p>\n","protected":false},"author":2,"featured_media":22464,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-4584","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stories"],"acf":[],"_links":{"self":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/4584","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/comments?post=4584"}],"version-history":[{"count":1,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/4584\/revisions"}],"predecessor-version":[{"id":30725,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/posts\/4584\/revisions\/30725"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/media\/22464"}],"wp:attachment":[{"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/media?parent=4584"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/categories?post=4584"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/further.co.za\/amabwp\/wp-json\/wp\/v2\/tags?post=4584"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}