Transnet paid Gupta-linked company Regiments Capital a massive 754% more than the R35.2m it had budgeted for transaction advisory services between 2013 and 2015.
This is despite the state-owned company having its own expert funding team, which negated the need to hire an external party to do the same work.
Jonathan Bloom, an expert in financial risk management who was contracted by MNS Attorneys to assist in their investigation into corruption and irregular expenditure at Transnet, told the state capture inquiry on Friday that the money handed to Regiments was “excessive”.
Bloom’s testimony brings to a close a week of testimony from employees at MNS Attorneys who worked on the investigation, which was commissioned by Transnet’s new board in 2018.
His role in the investigation was primarily to assess Transnet’s dealing with two Chinese locomotive manufacturers, China South Rail and China North Rail, in the purchase of 359 electric trains and 232 diesel trains from these entities.
These trains formed part of the larger, and more controversial, multibillion-rand deal Transnet had with various entities to acquire 1,064 locomotives – a transaction shrouded in fraud and corruption.
Bloom was called in to assess how this deal was financed and how the risks associated with such a large purchase were dealt with.
Throughout the week, the commission heard evidence on what MNS Attorneys found in its investigation at Transnet – which was handed over mid-2018 and resulted in various senior officials being axed.
Part of this investigation focused on the appointment of transaction advisers to assist the company with financing the 1,064 locomotives deal. The job was given to a consortium led by state capture-implicated global consultancy firm McKinsey in July 2012.
In its consortium was another company, Letsema, which was a co-bidder for the advisory tender and several other subcontractors, including Barloworld. By August that year, Transnet raised a conflict of interest between Letsema and Barloworld, and recommended that Letsema be replaced.
The company which took its place: Regiments Capital. Regiments would then go on to replace other subcontractors in the consortium until eventually, on February 5 2014, McKinsey controversially ceded its rights and responsibilities on the deal to Regiments.
The spending on these advisory services was capped at R35.2m.
What that money paid for was advice on how Transnet should finance its purchase of 1,064 locomotives – a deal which would eventually cost the company more than R50bn.
Initially, Transnet entered into two loan agreements to pay for the trains: the first with the Chinese Development Bank for about $1.5bn and another, referred to as a “club loan” between a syndicate of lenders, for about $1bn.
By July 2015, Regiments was paid R265.5m (excluding VAT) for about two years of work for Transnet advising on these transactions.
Current Transnet acting chief executive Mohammed Mahomedy previously told the commission that some of Regiments’ services included carrying loan swaps from floating interest rates to fixed interest rates – something that Transnet’s treasury team could have handled on its own.
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Bloom told the commission on Friday that according to his calculations, the $2.5bn borrowed at the time translated to about R28bn. The fee paid to Regiments for advisory services was 1% of the entire loan amount and was 754% more than Transnet originally budgeted for those services.
“In 2014, when the China Development Bank loan was being negotiated and finalised, Transnet had a funding team that included three highly experienced funding managers and an analyst with 50 years’ accumulative experience between them,” he said.
“One wonders why was it necessary to engage an external party to do work when the expertise and capacity existed within Transnet at the time.”
BY AMIL UMRAW- TimesLIVE
Source: TMG Digital