Author Archive

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.

Third attempt to wind up Oakbay heads to court

Written by Ciaran Ryan. Posted in Journalism

Rescue practitioners for other Gupta companies say it’s unable to repay R402m loan. From Moneyweb.

Oakbay was the holding company for the Gupta empire. Its main asset is Tegeta, which holds shares in four companies that together owe R4bn to creditors. Image: Siphiwe Sibeko, Reuters
Oakbay was the holding company for the Gupta empire. Its main asset is Tegeta, which holds shares in four companies that together owe R4bn to creditors. Image: Siphiwe Sibeko, Reuters

Business rescue practitioners for the eight Gupta companies under rescue have applied to the Johannesburg High Court for the winding up of Oakbay Investments, one Gupta company that avoided being placed under rescue.

The application is being brought by Tegeta Exploration and Resources and Islandsite Investments, both of which were placed under business rescue nearly two years ago.

Read: Swarm of court cases engulfs former Gupta mines 

This is the third time the practitioners have applied for the winding up of Oakbay. The first application in September 2018, claiming R2 million in rental and services owed by Oakbay to Tegeta, was withdrawn when the claim was settled. In February 2019 a second winding up application claimed Oakbay owed R3.8 million, but it too was withdrawn when the bill was paid at the last minute.

Read: Rescue practitioners take another stab at liquidating Oakbay (May 2019)

When Oakbay was initially unable to settle Tegeta’s above-mentioned R2 million claim, its acting CEO Ronica Ragavan admitted that the company was unable to pay, according to an affidavit by Kurt Knoop, one of the business rescue practitioners. Despite Oakbay later settling the claim, acknowledging being unable to pay constituted an act of insolvency.

This act of default triggered a claim for repayment of a loan of R402.3 million, a figure that was determined after an external forensic analysis.

The attorneys for the business rescue practitioners demanded repayment of the loan in September 2018, to which Oakbay replied that it was not liable. “The denial of liability was laconic in the extreme, without any elaboration,” says Knoop’s affidavit.

Read: Guptas inflated Oakbay price through trading by Singapore firm 

Oakbay formed part of the Gupta empire, and ran into trouble after SA’s commercial banks closed its accounts, citing reputational risk and the potential breach of banking regulations. The Gupta companies then relied on banking facilities provided by Bank of Baroda, which conducted a correspondent relationship with Nedbank. Bank of Baroda notified Oakbay of its intention to terminate its transactional banking facilities in 2017, and would thereafter close its SA branch. This left Oakbay and the Guptas without any banking facilities, forcing them into business rescue.

Oakbay was the holding company for the Gupta empire, and was reliant on its underlying businesses for survival.

Its main asset is Tegeta, which holds shares in four companies: Optimum Coal Mine, Koornfontein Mines, Optimum Coal Terminal and Shiva Uranium, all of which are under business rescue. Cumulatively, these companies owe R4 billion to creditors and are currently under care and maintenance.

Oakbay’s other assets include: Oakbay Resources and Energy, which had a share in Shiva Uranium; Westdawn Investments (whose sole source of income was from mining contracts it had with Optimum Coal Mine); and two labour broking companies.

The entire business foundation of Oakbay has failed and is unlikely to ever recover as a business, says Knoop.

Business rescue practitioners have been unable to access company records and financial statements for Oakbay.

As Moneyweb previously reported, the remnants of the Gupta empire are facing multiple court battles, one of them from Westdawn for the liquidation of Optimum Coal, and another from black-owned mining group Lurco, which is asking the court to interdict the sale of Koornfontein to Black Mining Royalties for a much lower price than Lurco is offering.

Read: Miners survive on charity while battle for Koornfontein mine drags on

Bonds, tobacco and health care expected to shine amid the gloom

Written by Ciaran Ryan. Posted in Journalism

Fund managers surveyed by Bank of America Securities are bullish SA on bonds, but bearish cash. From Moneyweb.

BofA is also bullish on the rand, which it says is the most shorted currency among emerging market currencies. Image: Waldo Swiegers, Bloomberg
BofA is also bullish on the rand, which it says is the most shorted currency among emerging market currencies. Image: Waldo Swiegers, Bloomberg

There isn’t much for investors to celebrate in South Africa, with economic growth lumbering along at a forecast 0.8% this year and 1.1% in 2021.

But there are a few pockets of hope amid the gloom. A recent survey of 15 fund managers by Bank of America Securities shows two-thirds believe SA bonds are undervalued (against 33% a month ago). The last time fund managers were this bullish on bonds was in 2013. There was consensus among the managers that SA 10-year bonds were a buy at 9.5%.

This comes on the cusp of a possible further credit downgrade by Moody’s, which cut SA’s sovereign rating from stable to negative last November. A further downgrade will bump SA from the FTSE World Government Bond Index (WGBI), resulting in a predicted sell-off as high as R117 billion.

Read: How significant is foreign ownership of SA bonds?

Moody’s cited high unemployment, income inequality and distressed state-owned companies, notably Eskom, as causes of its disquiet.

Fund managers surveyed by Bank of America (BofA) appear to agree with these sentiments, with more than half expecting SA to leave the WGBI in 2020. If we survive this year, the likelihood of being dumped from the index next year recedes, according to fund managers.

Only 7% of those surveyed have any hopes of government accelerating reform, and less than half see equities being higher within the next six months.

The forecast for the repo rate over 12 months is 6.12%, with bond rates forecast at 8.75% and the rand at R14.85 to the US dollar.

John Morris, ‎South Africa investment strategist for BofA Securities, says one of the key risks for fund managers is the weak earnings outlook in 2020, with Eskom’s well publicised troubles looming large over the economy. Less than a third of the fund managers surveyed have any hopes of a financial or operational solution to Eskom.

John Morris, ‎South Africa investment strategist for Bank of America Securities. Image: Moneyweb

“If Moody’s downgrades SA, bonds can rally,” he says. “That tells us that a downgrade is already priced into the market. We’re also bullish on the rand, which is the most shorted currency among emerging market currencies. We may see a rally in the market in the first quarter of this year which could then peter out. Investors want to see evidence of government reforms and policy certainty before investing. But a bit of positive news can push prices by 20-25%.”

Fund managers have turned bearish on cash over the last month, turning their affections to bonds instead. They expect earnings growth of 8.1% over the next 12 months, which is better than the expected 6.4% recorded a month ago. For the third month in a row, fewer fund managers see the equity market as undervalued, though there are more buy and sell opportunities, making it a stock pickers’ market.

NHI risks ‘still some way off’

Sectors that are expected to perform are tobacco, health care, banks and precious metals. Morris says BofA recently upgraded Netcare and Life Healthcare, notwithstanding the uncertainties facing health providers with the introduction of national health insurance. “National health insurance risks are still some way off,” says Morris.

Optimism has returned to the bombed-out retail sector, with BofA recently upgrading Massmart on its announced restructuring plans. Pick n Pay, Spar and Mr Price are other retailers showing promise as we head into 2020.

Real estate, life insurance and gold are the least preferred sectors.

Some 40% of fund managers expect the economy to improve this year, with nearly half expecting inflation to rise.

Two-thirds of fund managers say monetary policy is too restrictive and would like to see interest rates drop to boost the economy. There is a consensus view that the SA Reserve Bank will cut interest rates in 2020.

A third of fund managers expect the February budget to bring more bad news.

Parliament extends deadline for land expropriation submissions after public outcry

Written by Ciaran Ryan. Posted in Journalism

Some submissions to the legislature’s email address have been blocked for “unacceptable content”. From Groundup.

Photo of Parliament

Parliament is considering a bill that would amend the Constitution’s property clause. Archive photo: Ashraf Hendricks

Parliament announced, on Thursday, that it has extended the deadline for public comment to 29 February on the land expropriation with compensation proposal, apparently bending to pressure after numerous submissions were blocked by parliamentary IT servers for “unacceptable content”.

The extension comes after several people attempting to make submissions to the designated parliamentary email address got a message back saying their emails were blocked for “unacceptable content”.

Most of the public submissions are being channelled through participative democracy organisation Dear South Africa, which offers a platform for the public to make submissions to Parliament. The submission page can be accessed here.

“The fact the Parliament has decided to extend the date for submissions on land expropriation without compensation is a victory for participative democracy,” says Dear South Africa founder Rob Hutchinson. “Dear South Africa and many other citizens protested the fact that emails were being blocked for ‘unacceptable content’. When we looked at the content, we could find nothing objectionable. This is worrying that Parliament’s servers appeared to be rejecting submissions for reasons that are vague and lacking transparency. We’re pleased that the extended deadline gives the public more time to make their voices heard, but we are watching closely to ensure that submissions are not being blocked for spurious reasons.”

GroundUp is in possession of several of these bounced emails and they all share one thing in common: they are opposed to the proposed amendment to the Constitution. There appeared to be nothing offensive in the emails, other than some strident language in opposition to corruption and land expropriation without compensation.

Dear South Africa has compiled more than 160,000 comments on the proposed change to Section 25 of the Constitution which would allow the state to expropriate land without compensation. More than 80% are opposed to the amendment, which is substantially higher than the 57% opposed to it when a similar campaign was launched by Dear South Africa a year ago.

GroundUp sent questions to Parliament’s IT Services department about the blocking of submissions but had not received a response at the time of publication.

In a previous response to Dear South Africa over the blocking of submissions, Parliament’s IT Services department said one email was blocked for undesirable content flagged by “proactive filters” operated by its internet service provider. It was unable to say what was undesirable about the submission as such messages are deleted after three days. On further investigation it was found that Parliamentary servers blocked the domain from which the submission had been sent.

Other emails originating from Gmail and Telkom servers have also been blocked.

Hutchinson says it may be a technical issue behind the recent rejection of submissions, with Parliament’s spam filters set too high. These are filters that reject incoming emails containing certain key words, or emails sent from suspicious domains.

“As a participative democracy organisation, we are completely agnostic on the question of land expropriation, but we want to make sure that as many voices as possible are heard on this vital issue for the country. We don’t think Parliament should be deciding what views are acceptable or unacceptable.”

Human rights advocate Mark Oppenheimer says land expropriation is an emotive issue for many South Africans, and the way the matter is being handled is being closely observed around the world. “This has huge implications for South Africa going forward and how we are seen to handle property rights will undoubtedly impact foreign investment in the economy. If government is seen to be trying to smuggle the issue through Parliament in the dead of night, as it tried to do last December before the holidays, or to obstruct the public participation process, this certainly opens it up to legal challenge if the amendment goes through.”

Hutchinson says South Africans will have to live with the consequences of the land expropriation vote, and Parliament must be seen to be doing everything in its power to encourage debate on the subject.

Former Eskom chief nuclear officer appointed chair of Necsa

Written by Ciaran Ryan. Posted in Journalism

British-born David Nicholls is highly respected in the industry. From Moneyweb.

Nicholls’s departure from Eskom at the end of 2018 was reportedly due to the utility’s desire to cut its wage bill. Image: Supplied

Nicholls’s departure from Eskom at the end of 2018 was reportedly due to the utility’s desire to cut its wage bill. Image: Supplied

Minerals and Energy Minister Gwede Mantashe’s appointment on Friday of former Eskom chief nuclear officer David Nicholls as chair of the troubled Nuclear Energy Corporation (Necsa) was a surprise move.

It followed the resignation of the previous board a week ago, leaving the organisation rudderless, though Ayanda Myoli continues as acting CEO. A week ago the remaining four members of the Necsa board who hadn’t already jumped ship (there were 10 board members in 2018), sent a letter to the minister berating him for his lack of support. The four directors who resigned were Dr Pulane Kingston, Dr Pulane Molokwane, Matlhodi Ngwenya and Bishen Singh.

Mantashe fired back on Twitter: “We must reinstate Necsa into a functional state. We can’t allow dysfunctional governance. We must appreciate that correcting governance is painful.”

Turmoil

Necsa has been in turmoil since late 2018 when former energy minister Jeff Radebe sacked the previous board, including Dr Kelvin Kemm (chair), CEO Phumzile Tshelane and finance director Pam Bosman, on dubious grounds of “defiance”. In August last year the Pretoria High Court overturned Radebe’s suspension of Kemm and Bosman, but made no ruling on Tshelane’s status as a disciplinary process was still ongoing.

Read: Axed Necsa board blames resistance of ‘privatisation by stealth’ for dismissal

Moneyweb is in possession of an invoice from MNS attorneys, Necsa’s legal advisor, for R1.7 million related to Tshelane’s disciplinary hearings. This may explain why Necsa’s legal battles with former staffers seem to have no resolution, says a company insider.

Hopefully, Nicholls can bring some sorely needed stability to the company and resolve the mess initiated by Radebe.

Nicholls is highly respected in the industry and regarded as a non-nonsense leader who gets things done. As chief nuclear officer at Eskom he was responsible for the new build programme at Koeberg power station in recent years – and was always fair and diligent in his dealings, says an industry insider who asked not to be named.

While at the utility he revitalised the Pebble Bed Modular Reactor (PBMR), an area in which South Africa was a world leader.

Nicholls was one of nine executives let go as part of a programme to cut Eskom’s wage bill, according to a 2018 Eyewitness News report.

He had worked his way up through the ranks at Eskom, working in its nuclear engineering department in the early 1980s before being appointed as technical support manager at Koeberg in the early 1990s. He headed up the PBMR project before it was put on the back burner during former president Jacob Zuma’s tenure. He was later appointed chief nuclear officer at Eskom, and has experience managing Koeberg, which is the lowest cost provider of electricity to the grid.

New board

Others appointed to the Necsa board are Dr Namane Magau, James Maboa, Senamile Masango, Joseph Shai, Letlhogonolo Noge-Tungamirai and Dr Gregory Davids.

Maboa is reportedly well respected by the largest trade union at Necsa, the National Education, Health and Allied Workers’ Union (Nehawu), and some on social media endorsed Masango as a progressive nuclear scientist. Davids has a background in human resources.

Zolani Masoleng, branch chair of Nehawu at Necsa, said the union welcomed the appointment of the new board.

“This is a very important step in restoring governance and stability in the organisation. It gives all of us another chance to turn Necsa around from the destructive path under the previous board, and place it once more in the path of growth and sustainability.

“We are making a clarion call to the board to lead by example in inculcating a culture of good corporate governance and to at all times place the interests of Necsa above those of their own. None of them should individually or collectively act in a manner that dishonours the organisation.

“As the majority union we will work with the board to make Necsa a prosperous organisation. We wish them all the best.”

Read: Nuclear energy company’s not-so-secret plan to beat the courts

There is lingering uncertainty over the fate of the board members sacked by Radebe – Kemm, Tshelane and Bosman – all of whom remain in legal dispute with Necsa.

In August last year the Pretoria High Court ordered the reinstatement of Kemm as chairman and Bosman as head of audit and risk. The effect of the judgment was to dissolve the replacement board, according to legal experts.

Read: Court issues damning judgment against former energy minister Jeff Radebe

In October last year the Portfolio Committee on Mineral Resources and Energy chimed in, saying there was no board at Necsa. It told management and labour to work out their differences in the interests of the company.

The replacement board’s letter of resignation claimed Necsa had been technically insolvent since 2014 and had been making losses since 2014 – a claim that Kemm refutes: “In the last year that I was chairman, before being removed by Radebe, we made a R300 million profit. This resignation letter is a load of nonsense that attempts to shift blame to my board. It is also an insult to the Auditor-General which gave us a clean audit report as well as to the Institute of Directors which gave us an award for our outstanding governance.”

Read: Necsa and Auditor-General poles apart on 2018 financial report

Kemm continued: “It is such a pity what has happened to Necsa. We had a stable, profitable company under my board and then Jeff Radebe was appointed minister and started to give us operational instructions, which we objected to.

“Political interference in the running of a state-owned company just does not work. I wish Mr Nicholls all the best in his task ahead’.”

Necsa has been dipping into funds ring-fenced for rehabilitation of the nuclear reactor. Kemm says under his chairmanship, Nedbank demanded collateral of R100 million from the ring-fenced funds for a loan of R60 million to tide it over a cash flow shortage. The R60 million was repaid and the collateral released.

Last week’s resignation letter to Mantashe appears to suggest the company has had to find as much as R554 million from loans, overdrafts and borrowing from emergency funds to meet its liabilities.

It may be time to liberate auditors from the accounting profession

Written by Ciaran Ryan. Posted in Journalism

New report says auditors need to go beyond scepticism and become suspicious of clients. From Moneyweb.

Shareholders still want to know how the watchdogs failed to pick up the signs of accounting fakery at the likes of Tongaat and Steinhoff. Image: Shutterstock
Shareholders still want to know how the watchdogs failed to pick up the signs of accounting fakery at the likes of Tongaat and Steinhoff. Image: Shutterstock

A report by former head of the London Stock Exchange Sir Donald Brydon published in December says it’s time to split audit from accounting and establish it as an independent profession with its own standards and qualifications.

The new, improved audit should be a profession separate from accounting with its own governing principles, qualifications and standards. “At present it is an extension of the accounting profession, whose ethics and (arguably) mindset it largely adopts,” says the report.

It would embrace non-financial disciplines such as cybersecurity and environmental behaviour and provide more informative reports to different interest groups. Gone are the days of executives being responsible only to shareholders, as economist Milton Friedman suggested. Auditors need to go beyond scepticism and become suspicious, says Brydon.

There is unspoken acknowledgement in Brydon’s report that the audit profession is failing as a public watchdog.

Shareholders want to know how the watchdogs failed to pick up the signs of accounting fakery at Tongaat and Steinhoff, to name just two fairly recent examples.

Read: The winners in the Steinhoff mess

Part of the problem is the nature of the audit itself: it is expected to provide a reasonable level of assurance that the financial statements are fundamentally true and fair based on a tiny sample of transactions. That said, audit teams are expected to identify areas of high risk and focus on these. New technologies are fast emerging which allows a far higher level of sampling and, aided by blockchain technology, we may soon be able to verify all transactions in real-time.

Read: Take published financial statements with a bucket of salt

Many of these problems of the external audit could be improved by strengthening internal audit teams. But here again, there are difficulties: overbearing CEOs often surround themselves with weak internal auditors who can be bullied. Audit committees are supposed to buffer against executive bullying but this too is no guarantee of independence.

The profession has long been dogged by suspicions of corporate capture.

No matter how robust the audit standards, there is a perception that audit independence has been compromised by the accounting business model: the Big Four firms undercharge clients for audit services in the expectation of picking up higher-paying work elsewhere. As Richard Brooks points out in The Bean Counters: The Triumph of the Accountants and How They Broke Capitalism, every crisis is an opportunity for the Big Four accounting firms, whose profit and revenue growth barely skipped a beat during the 2008/9 financial crisis.

Read: How the accountants mangled capitalism

Various solutions have been proposed:

  • Breaking up the Big Four to separate consulting from audit (which would raise the cost of auditing);
  • Mandatory audit firm rotations; and
  • Establishing an independent body to appoint and reimburse auditors, rather than allow companies to select their own auditors.

Nicolaas van Wyk, CEO of the SA Institute of Business Accountants (Saiba), says the entire concept of the audit needs to be reformulated. “There should also be different audits for different users of information. As things stand, the audit is designed to satisfy all users of the information but it is severely lacking in the kind of detail different users require.

“For example, if the company wants to take out a loan with a bank, it should provide an audit that specifically addresses the kind of information that the bank requires.”

Rotation

The Independent Regulatory Board for Auditors (Irba) has introduced mandatory 10-year audit firm rotations (MAFR) as one method of maintaining audit independence. CEO Bernard Agulhas says as of September 2019, 21% of companies on the JSE had rotated auditors – with 41% of those companies citing the early adoption of MAFR as the reason for rotation. All listed companies have until 2023 to comply with mandatory audit rotation.

Read: Audit rotation hits KPMG, benefits rivals

The Big Four accounting and audit firms – EY, PwC, Deloitte and KPMG – account for the vast majority of audits of the 40 largest JSE companies and 100% of FTSE 100 firms.

“The cost of MAFR will always be insignificant when compared to the cost to investors and pensioners when there is an audit failure, resulting in billions of rands lost, as illustrated by recent failures,” says Agulhas.

“The lead time allowed for the introduction of MAFR of five years has allowed companies and audit firms to plan for this process and for firms offering other prohibited services to cool off in compliance with the Companies Act in order to be eligible to take on audits where they previously did not audit.”

Joint audits

Irba is also in favour of ‘joint audits’ to allow smaller firms an opportunity gain experience and break the Big Four stranglehold. That, however, is easier said than done.

The overwhelming dominance of the Big Four as a repository of skills and know-how may take a generation to overturn.

There have been several radical suggestions in recent years to strengthen the audit: Professor Piet Delport, retired professor of mercantile law at the University of Pretoria, suggests making the audit voluntary, with different stakeholders demanding more focused audits as and when they are needed. Asking audit firms to provide audits that satisfy all users is no longer feasible. If you’re a bank being asked to extend a credit facility to a company, you will want an audit that looks at the company’s realistic ability to repay the loan. Banks are already having to adjust published financial statements to firm up estimates and non-cash transactions – something accounting standards setters have battled with for years.

Auditors not paid enough?

Jodi Joseph, divisional executive at audit and financial software group CaseWare Solutions, says auditors simply aren’t paid enough to provide the kind of audit expected of them. “I think the auditors of the future are going to have to be well versed in data analytics, for the simple reason that technology is going to be a vital part of the audit going forward. The sample sizes are going to have to get bigger. Blockchain will form part of the solution since it can help verify what is a trusted transaction.”

One of the key changes recommended in the Brydon report is to redefine the audit as a means to “establish and maintain deserved confidence in a company, in its directors and in the information for which they have [the] responsibility to report, including the financial statements”.

Read: Audit firms up in arms over Irba’s possible search and seizure powers

Agulhas says Irba supports this redefinition and “in particular has been stressing the importance of aligning the audit function to investor needs”.

He explains: “Projects are underway to look at strengthening the fraud risk identification standard, as well as auditor competencies. It may be that more training and competency is required in the area of identifying fraud, which up until now has not been an auditor’s responsibility.”

Principles instead of rules

Another key recommendation from Brydon is the creation of a corporate auditing profession governed by principles rather than rules – for the simple reason that rules are too rigid and easily side-stepped, while principles (such as ‘Do not lie’) are more difficult to fudge.

Irba recently adopted an updated and strengthened code of ethics that was already principles-based. It is also looking at ways to expand the audit beyond financial reporting to provide assurance in areas such as environmental compliance.

Former Belgian investment banker hauls RMB to court over failed property deal

Written by Ciaran Ryan. Posted in Journalism

The evidence, unless disproven, is compelling. From Moneyweb.

Fred Arijs and his partners say they have spent close to R9m in legal fees fighting the case, and they’re not giving up. Image: Moneyweb

Fred Arijs and his partners say they have spent close to R9m in legal fees fighting the case, and they’re not giving up. Image: Moneyweb

Fred Arijs, a former investment banker and one-time Belgian honorary consul in the Eastern Cape, has accused RMB and several senior bank executives of taking him to the cleaners, in a calculated scheme to defraud him and his business partners in two property deals gone horribly wrong.

In November last year the companies in which Arijs (pronounced Arish) was involved issued summons against RMB and several executives with some startling allegations. According to Arijs’s attorney, the bank this week sequestrated Arijs in the Cape High Court to reclaim sureties of R4.5 million.

What makes the case bizarre is that Arijs and his partners say they have spent close to R9 million in legal fees fighting the case over the years – and they’re not giving up, despite Arijs’s sequestration.

Initial investigations

Arijs is a former investment banker and says once he started investigating how the property deal went wrong, he immediately recognised the outlines of a fraudulent scheme intended to line the pockets of the bank at his expense.

RMB has denied Arijs’s allegations and says it pulled out of the property deal for purely commercial reasons. The bank has not filed its reply to Arijs’s claims. Moneyweb will file a follow-up story once it does.

It is a long and involved case going back several years, with multiple court actions proceeding simultaneously.

The beginning

The story began in 1998 when Arijs retired from European investment bank Ceneca in Belgium and moved to South Africa to pursue property development opportunities.

He teamed up with other Belgian investors and in 1999 launched the Whale Rock residential development, a landmark project in Plettenberg Bay.

Arijs and his partners were less interested in developing their commercial properties than squatting on them until they could be sold for a decent profit, but that all changed in 2007 when they were approached by Dawid Wandrag, then-head of the FirstRand property finance credit committee, who proposed setting up joint venture companies to codevelop two properties, both in Plettenberg Bay.

One was a 59-hectare plot the bank figured would be ideal for a hotel and residential complex; the second a 1.4-hectare piece of prime real estate that RMB, in terms of a feasibility study, proposed turning into a shopping centre, boutique hotel and residential development.

In 2009, two joint venture companies were set up to develop the properties: Shock Proof Investments and Lighthouse.

RMB set up a special purpose vehicle (SPV) called RMB Property Holdco 1 (Holdco) to take up a 50% equity stake in the two developments.

The bank appointed RMB employees as directors of Shock Proof and Lighthouse, as did Arijs and his South African partners, with the bank retaining overall voting control.

By this time Arijs had teamed up with some South African partners. They purchased properties from Whale Rock and injected these into the new deal with RMB, which was to be both funder and equity partner in the new developments.

Agreements signed

The joint venture and shareholder agreements were approved on November 13, 2007 and signed off by Allan Pullinger (then RMB CEO), Willy Robinson, Theunis Bosch, Wandrag, Cindy Veres and other senior executives of the bank.

The bank invested equity of R6.3 million in Lighthouse, and a further R6.6 million in Shock Proof, to be supplemented with a loan of R4 million on a successful record of decision from the environmental authorities. Papers before the court show the bank committed to providing any and all funding required for the completion of the developments. RMB’s feasibility studies green-lighted the two projects.

At no time were either of the two JV companies in default on the loan agreements.

Arijs and his partners were servicing their share of the interest on the loans but, astonishingly, 50% shareholder RMB Property Holdco 1 was not – putting it in breach of the JV agreements.

This is admitted by Wandrag in a 2011 email to his colleagues wherein he laments the fact that the bank had not kept to its side of the agreement and recommends refunding Arijs’s contributions for professional fees so the project could avoid any further delays.

Arijs uncovers evidence of an unlawful preference share scheme

What was not known to Arijs and his partners at the time, they claim, is that RMB had converted its equity claims in Shock Proof and Lighthouse (along with several other similar property development companies) into preference shares, which it on-sold to investors for a profit.

In banking-speak, this is known as securitisation, where assets such as credit card debts, mortgage loans or preference shares are packaged together and converted into a bond, which can then be sold to investors. In terms of the Banks Act there is nothing wrong with this, provided the bank does not own shares in the securitisation SPV.

Securitisation allows banks to convert otherwise sterile or long-term assets into cash, to boost their balance sheets and continue lending. Banks use ‘bankruptcy-remote’ SPVs to securitise assets, since this insulates them against any contagion that might arise as a result of default.

Bank denies any links with its property development company

Here is the problem: Arijs’s affidavit suggests the bank has a direct share in Holdco (the SPV), which has a direct stake in Shock Proof and Lighthouse, and is therefore in breach of the Banks Act, the shareholders agreements and good corporate governance, since the preference share scheme was kept a secret from Arijs and his partners.

In the process of doing this, Arijs claims the land was fraudulently sold from under him.

That the bank never told him about the preference share scheme would also violate the Companies Act since any disposal of assets must be agreed by the board and 75% of shareholders.

He says he only found out about it through the process of discovery in his various court actions against the bank.

RMB claims it pulled out of the property deal for purely strategic reasons and Arijs initially believed this – until he started tripping up on documents that seem to suggest the bank had no intention of proceeding with the development, even before it started. Shock Proof and Lighthouse were liquidated around 2014 and the two properties sold for about R12 million.

Bear in mind, Arijs is saying RMB was liquidating companies in which it had overall control and was the sole creditor.

Premeditated scheme

Arijs’s affidavit alleges that the bank’s plan all along was to securitise his land (by converting the shareholders’ loans into preference shares), sell these shares for a profit, liquidate the JV development companies, then claim sureties from the minority shareholders (Arijs and his partners) and walk away without a scratch.

In other words, Arijs is claiming that this was an elaborate land theft scheme. He is now claiming about R80 million in damages against the bank.

This forms the basis of his claim of premeditated fraud by RMB – a claim that has been denied by the bank (see below).

In several court cases related to the Shock Proof and Lighthouse matters, RMB’s then-head of credit recovery Jean du Plessis has denied any link between RMB Property Holdco and the bank. If true, then the bank is free and clear as far as the Banks Act is concerned.

Remember, a bank may not own shares in a securitisation scheme since this could expose its own balance sheet to contagion in the event of default.

Contradictory evidence

But in the process of court discovery, Arijs came across a May 2014 email where Du Plessis appears to contradict his earlier testimony to the courts.

Writing to his debt-recovery colleagues, Du Plessis discusses various options for recovering the bank’s roughly R20 million exposure to both Shock Proof and Lighthouse. He proposes accepting an offer from Arijs and partners for R12 million for Shock Proof, adding that this should avoid any liquidations costs as well as any issues “in respect of us being a shareholder, director and creditor”.

That is an admission that the bank not only flouted the Banks Act, but also confirms the existence of a “composite agreement” that it had earlier denied existed, says Arijs’s affidavit.

The email appears to put the bank rather than the SPV (Holdco) at the centre of the scheme. It also looks like perjury, as Du Plessis claimed before various judges that there was no link between the bank and Holdco, and that there was no composite agreement. If there is a composite agreement, argues Arijs, then the sureties the bank is trying to claim are null and void.

No ‘composite agreement’

In previous court filings, the bank sought to demolish Arijs’s claim that there was a composite agreement comprising the Shock Proof and Lighthouse shareholders’ agreements, the JV and loan agreements between Arijs and the bank, and various other oral or tacit agreements. The argument claiming there was a composite agreement was thrown out by Judge Nichols in the Cape High Court in 2016, but this was before Arijs discovered the above-mentioned email and other documents that contradict its earlier claims before the courts.

Claims of oppressive conduct

Arijs also claims this fits the definition of “oppressive conduct” by a shareholder in terms of the Companies Act. He argues in his court papers that the bank contrived the preference share scheme behind the backs of the minority shareholders, which is the kind of conduct Section 163 of the Companies Act seeks to eliminate. One group of dominant shareholders may not act against the interests of others.

There are several other oddities surrounding the case.

Louis Schnetler and Theunis Bosch, at the time employees of FirstRand Bank (RMB’s parent company), purported to act as directors of the companies, though no resolutions or letters of appointment by the bank have yet surfaced. This in itself would be a violation of the Companies Act.

What later emerged in the process of discovery is that Holdco had issued preference shares and ceded the rights to wind up the property assets to its parent company, RMB Investment and Advisory, which owns 92.5% of Holdco (the other 7.5% is owned RMB Co-Investment Trust), establishing a direct line between the bank and the SPV – something the bank has repeatedly denied existed in various court cases. FirstRand Bank and RMB directors were discovered to be trustees of RMB Co-Investment Trust.

That the RMB directors are accused of concealing all of this from Arijs and his business partners suggests they are in violation of their fiduciary responsibilities to act in the best interests of the company, not to mention the multiple violations of the Companies Act, shareholders’ agreement and the Banks Act.

Delays in development

The bank is also accused of deliberately delaying the development of the two Plettenberg Bay properties, by demanding changes in design and contractors. This, argues Arijs, lends credibility to the claim that the project was never intended to get off the ground in the first place. In a September 2011 meeting, Arijs and his partners were rudely informed that the bank had taken a decision two years earlier to withdraw from the property market. Two years earlier means the bank would have decided to exit the property market around 2009, yet this was precisely the time it was green-lighting the Plettenberg Bay developments.

The question then arises, why did the bank not simply sell its 50% share in the two projects and move on? A reasonable person might conclude that the bank is entitled to change its mind and sell its interests in the projects, but it appears RMB was not keen on this either. Arijs approached Investec to sound it out on taking over RMB’s interests and loans in the project.

Investec was reportedly interested until it received an email from RMB’s Schnetler effectively spiking any prospect of selling its interests in the deals.

At this point, it appears RMB resolved to liquidate the property development companies. Arijs alleges that none of this makes any sense unless you understand the bank was trying to hide the existence of an unlawful preference share scheme intended to benefit senior bank executives.

RMB has yet to file its plea affidavit in the latest case. Moneyweb will file a follow-up when it does. RMB has also accused this writer of being exploited by Arijs to advance his “questionable intentions”. This allegation is denied.

Disrespect

The bank also suggests Arijs disrespected the court by failing to turn up at a hearing last year. This should be put in context: Arijs has had no fewer than four sets of lawyers over the years who deserted him at the steps of the court, citing different reasons including conflict of interest.

This is not an uncommon problem facing anyone challenging the banks and appears to have little to do with the merits of the case.

Arijs says RMB may be better positioned to explain why so many of his lawyers have run for the hills whenever a court date looms.

That his case has merit has been confirmed by three sets of lawyers, including senior counsel, who at various times were engaged by Arijs.

RMB responds

“Rand Merchant Bank (a division of FirstRand Bank Limited) is aware of the accusations made against the bank by Fred Arijs relating to property developments in the Plettenberg Bay area. These property developments never progressed for various commercial reasons.

“Mr Arijs is aggrieved about RMB’s decision at the time not to advance senior debt to the developments, after RMB made the decision that the projects were not commercially viable.

“Mr Arijs and RMB are currently engaged in litigation. The trial date was set for 9 May 2019 and Mr Arijs had the opportunity to testify publicly about his allegations but failed to attend Court. He was punished with a punitive cost order by the judge for his disrespect for the judicial system. His senior counsel also resigned a few days before the trial on the basis that Mr Arijs’s case had no merit.”

Arijs replies

Arijs says he did not appear in court because he was dropped by his lawyers just before the case was to be heard.

He adds that the costs order issued was an ordinary costs order (which is normal in cases of non-appearance) and no punitive costs order was issued.

“RMB also conveniently fails to address the latest summons issued,” he says.

Timeline of events

  • 2007: RMB approached Arijs and his partners with a view to codeveloping two properties in Plettenberg Bay. JV and shareholders agreements signed on November 13, 2007.
  • 2009: Two JV companies, Shock Proof Investments and Lighthouse, were set up to develop the properties: 50% was held by Arijs and his partners and 50% (plus one vote) by RMB Property Holdco 1, an SPV set up specifically for these developments. Arijs signed surety for R4.5 million in respect of loans extended by RMB to Shock Proof. Arijs and another partner signed sureties of R6 million each in respect of loans extended to Lighthouse (this claim was later dropped by the bank).
  • 2010-2011: There were delays on the project. FirstRand/RMB fell into in breach of the shareholders’ agreement by failing to service its portion of the loans. Arijs and his partners continued to service their portion of the loans.
  • 2011: FirstRand notified Arijs that it had made a decision to exit property developments two years previously, around the time the projects were launched and agreements signed.
  • 2012: FirstRand/RMB commenced liquidation proceedings against Shock Proof and Lighthouse. The loans were called up and Lighthouse was liquidated on June 21, 2012. FirstRand/RMB claimed R14.6 million and was the only creditor. In January 2012, the bank decided to write off its equity and loan facilities in Lighthouse – total value about R20 million – but decided to pursue recovery of its equity and loans in Shock Proof, so decided to claim R4.5 million limited surety from Arijs.
  • October 2012: The Master of the Cape High Court convened a Section 417/418 inquiry in terms of the Companies Act to, among other things, determine whether any of the directors could be held liable for the demise of the company. Arijs and his partners were keen to interrogate bank officials about how the bank came to its decision to close Lighthouse down. Arijs’s attorney Fred van der Westhuizen was sanctioned by Judge Blignaut for meeting privately, and without the bank’s attorneys present, with the Master of the High Court, as this was deemed prejudicial to the bank. Judge Blignaut set aside the Master’s decision to convene a Section 417/418 inquiry, thereby forcing Arijs to pursue his case through the courts.
  • 2014: Arijs brought an application in the Cape High Court, arguing that the loan agreements could not be separated from the other agreements (the loan, JV and shareholders’ agreements). He attempted to argue that all agreements with the bank should be consolidated and viewed as one, which would render his sureties null and void. Arijs contended that he was signing surety without the bank having disclosed that it had ceded the rights to wind up the companies to another bank entity called RMB Investment and Advisory. The bank denied any link between RMB Property Holdco 1 and the bank (which Arijs later found to be untrue). Arijs lost the court case.
  • 2018: In the process of discovery, Arijs learnt of the existence of a hidden preference share scheme that his lawyers advised was unlawful. He applied to court to amend his pleadings reflecting this new discovery. Judge Nuku in the Cape High Court ruled that the matter was prescribed (out of time) and rejected the application.
  • 2018: Arijs brought an action to compel the bank to supply documents related to the loans, including credit approvals, resolutions authorising the appointment of directors, and documents related to the preference share scheme. The bank supplied the required documents in phases between May and September 2018. Included in this bundle of documents is what appears to be an admission by the bank that it had misled the court about the link between Holdco and the bank (placing it in breach of various agreements).
  • May 2019: Arijs instructed his attorney to amend the Shock Proof pleadings in light of the discovery of alleged perjury. The attorney, Michael Lombard, failed to file papers. The court awarded costs against Arijs to the tune of about R289 000 and then commenced sequestration proceedings against him.
  • January 14, 2020: The Cape High Court sequestrated Arijs. 

Arijs says he has never had an opportunity to argue the merits of his case, despite eight years of trying.

Court confirms reckless lending ruling against Shoprite

Written by Ciaran Ryan. Posted in Journalism

Figures were massaged to influence affordability assessments. From Moneyweb.

Most of those affected by the retail giant’s conduct are financially vulnerable and could not afford to take out additional credit. Image: Waldo Swiegers, Bloomberg

Most of those affected by the retail giant’s conduct are financially vulnerable and could not afford to take out additional credit. Image: Waldo Swiegers, Bloomberg

The Pretoria High Court has upheld a 2017 decision by the National Consumer Tribunal that Shoprite was guilty of reckless lending, by adjusting credit bureau information as well as customers’ future financial commitments to ensure they received credit.

It has been ordered to pay a R1 million fine within 30 days, confirming the earlier decision by the tribunal.

The retail group has also been ordered to appoint a debt counsellor at its own cost to ensure affected customers are not overindebted.

Read: ‘Better half’ could only do so much for Shoprite

In 2014 the National Credit Regulator (NCR) was prompted by newspaper articles to investigate claims of reckless lending by some retailers, and this led it to focus on Shoprite.

The regulator asked Shoprite for a list of all credit agreements with customers between June 2013 and 2014, and then followed this up with a request for evidence of affordability assessments – which is a requirement of the National Credit Act (NCA).

The NCA prohibits credit providers from extending credit without examining the customer’s debt repayment history as well as “existing financial means, prospects and obligations”.

The Act defines the extension of credit to an overindebted customer as reckless lending.

The data supplied by Shoprite appeared to suggest some customers were being granted credit when 80% of their net incomes were already committed to prior debt obligations.

In some instances, customers were being pushed to the point of paying 90% of their net incomes in settlement of debts. Evidence was also presented to the court that some credit was granted without consulting the consumer’s credit history with the credit bureaus.

Shoprite had argued that the regulator didn’t have reasonable grounds, based on objective information, that gave rise to the suspicion that it was granting credit recklessly. It further argued that the data on which the regulator relied was not specific enough to launch an investigation.

Additional credit for the highly indebted

The regulator pointed to several customers whose budgets were already in the red at the end of the month, due to prior debt repayment obligations, yet were given additional credit by the retailer. In other cases, Shoprite disregarded certain monthly expenses and ignored instalments due to existing creditors.

Shoprite contended that the tribunal had erred in failing to take into account various adjustments it had made in its affordability calculations, for the very reason that the affordability assessments were often deemed incomplete and did not reflect the customers’ true financial position.

The High Court found several problems with Shoprite’s adjustments:

  • Customers were unaware of the way the retailer was arranging their financial affairs,
  • Customers were not consulted on whether they were prepared to sacrifice short-term insurance or DStv subscriptions to obtain fresh credit;
  • Shoprite did not have the income and expense information of the credit applicants’ spouses; and
  • The assumption that the spouse would cover the credit repayment in the event of default was “speculative to say the least”.

“The most astonishing aspect of Shoprite’s approach is the fact that many customers still had negative affordability figures after the ‘adjustment’ exercise,” reads the judgment.

“In view of the aforesaid, I agree with the finding of the tribunal that Shoprite extended reckless credit.”

The court also noted that the consumers affected by Shoprite’s conduct are mostly pensioners and individuals with low average income – in other words, financially vulnerable members of society.

Read: Court lays out the path for exiting debt review

Shoprite must now comply with the tribunal’s order by paying the R1 million fine and appointing a debt counsellor, who will be contacting affected consumers.

NCR CEO Nomsa Motshegare welcomed the court’s finding and is appealing to “any consumers who believe they may be a victim of reckless credit granted by Shoprite to lodge a complaint with the NCR”.

Complaints should be emailed to complaints@ncr.org.za.

US politics and American Brexit: 2020’s biggest global risks

Written by Ciaran Ryan. Posted in Journalism

Followed by China’s technological decoupling from the US. From Moneyweb.

Trump could impose retaliatory tariffs against the EU if Brussels goes ahead with the imposition of a Europe-wide digital tax. Image: Marco Bello, Bloomberg

Trump could impose retaliatory tariffs against the EU if Brussels goes ahead with the imposition of a Europe-wide digital tax. Image: Marco Bello, Bloomberg

A week ago it seemed that the world was on the brink of World War III, as Iran launched missiles against US military bases in Iraq in response to the US assassination of its Iran military commander Qassem Soleimani.

Fortunately both sides stood down and the threat of war has receded. This, however, could be the start of US disengagement from much of the Middle East, after the Iraqi parliament voted to request the removal of US forces from its land. Sooner or later the US will pull out of Iraq.

Read: EM assets fall after Soleimani killing   

One can’t help suspecting that US President Donald Trump, in an election year, sees the stock market as a proxy for his economic performance. A war would ruin that, and perhaps his chances of re-election.

Eurasia Group’s recently-released Top Risks 2020 report spells out the big threats facing the world. Top of the list is US politics – in particular the impeachment process against Trump, which will delegitimise the result of the upcoming elections.

Read: Some democrats ask Pelosi to let trial begin: impeachment update

Public opinion polls already cast doubts about the election result, nearly a year before the election due date. A 2019 poll by Ipsos shows that just 53% of the US public believe the presidential election will be fair. A close result is likely to be highly contested, and would perhaps even go to the courts. Any decisions made by Trump thereafter would be viewed as lacking authority. US allies and enemies alike wonder whether the US can lead itself.

“In the midst of a disputed 2020 election, many of those countries will wonder whether the US can govern itself. It’s a period of unusual geopolitical vulnerability to shock and escalation,” says the report.

An ‘American Brexit’ is unfolding as the US disengages from the world, overturning trade treaties and turning to hostile trade relations.

The next biggest risk facing the world is China’s decoupling from US technological reliance.

This all started with the US-China trade war, aggravated by the arrest in Canada just over a year ago of Huawei’s Chief Financial Officer Meng Wanzhou, for alleged violations of US sanctions against Iran. This was seen as an astonishing overreach by the US and Canada, and an interference in the trade relations of China and Iran.

“China will expand efforts to reshape international technology, trade, and financial architecture to better promote its interests in an increasingly bifurcated world,” according to the Eurasia Group report.

Cold war on the tech front

The result of this technology decoupling will be a ‘US-China tech cold war’ with heightened competition in artificial intelligence, quantum computing, 5G networks, supercomputing and semiconductors.

Other countries will find it harder not to get caught in the crossfire of the US-China trade war and souring relations between the two economic giants.

Eurasia Group doubts multinationals will step into a governance gap in the global order to lead in areas such as climate change, poverty relief and trade and investment liberalisation.

Nation states are reasserting themselves, presenting new risks to the capital and assets of corporations. In the European Union, governments are turning to industrial policies to promote domestic firms and act as a counterbalance to China’s statist approach to trade and investment. Governments are moving away from multilateral to bilateral agreements, and new regulatory risks will strain corporate reputations.

India

India, too, is retreating into a nationalist enclave, and recently implemented a system to identify illegal immigrants in the northeast of the country, stripping 1.9 million people of citizenship. The government also passed a law that makes religion, for the first time, a criterion for migrants from neighbouring countries.

Sectarian and religious conflict will grow, with Kashmir a potential flashpoint. Politicians from the area are under arrest and intenet access has been cut, provoking mass protest in many parts of India.

Prime Minister Narendra Modi appears in no mood to back down, and will have to navigate a path through declining economic growth, weaker tax returns and spreading protests.

Europe is also buttressing the trade rampart, by challenging US tech giants on their soft tax arrangements in countries like Ireland.

A more independent Europe poses risks for the US.

Trump is no supporter of the EU and could impose retaliatory tariffs if Brussels goes ahead with the imposition of a Europe-wide digital tax. France has already imposed a 3% tax on sales by multinational companies like Google and Facebook. Internet companies are paying taxes of 8% to 9% in Europe, while more traditional businesses are paying an average of 23%. 

China could face resistance from Europe and the US to its Belt and Road Initiative, a programme to connect Asia with Africa and Europe via land and maritime networks along six corridors.

Climate change politics

The politics of climate change is another risk facing the world, according to Eurasia Group. Countries are falling behind their carbon emission targets in terms of the Paris Accord, and the largest emitter, China, is unwilling to sacrifice economic growth to reduce its impact on global temperatures.

Complicating the picture is the emergence of an anti-elite backlash to climate action, as we have seen in France.

Though the world appears to have stepped back from the brink of a major regional conflict between the US and Iran, this conflict remains a deadly and destabilising threat.

Lethal skirmishes in Iraq between US and Iranian forces are likely. Iran will continue to disrupt tanker traffic in the Gulf. A more dangerous if still limited US-Iran regional conflict is less likely but possible. Iran tensions will put a minimum premium of $5 to $10 into the oil price this year and increase volatility, says the report.

Expect an incendiary year for Latin America

Public discontent in Latin America over corruption and declining public services reduces governments’ ability to impose austerity. Societies are becoming increasingly polarised and even the middle classes are taking to the streets to protest against cuts to public services.

Presidential approval ratings across Latin America are abysmal, with Venezuela’s Nicolás Maduro, at a bone-crushing 13%.

In contrast, Mexico’s Andrés Manuel López Obrador, barely a year in office, enjoys a support rating of 75%. Argentina’s Alberto Fernández was elected by angry voters and is under pressure to increase state intervention, and will try to boost growth by abandoning fiscal and monetary prudence. The same challenges are facing leaders from Chile to Colombia and Ecuador. It’s going to be an incendiary year in Latin America.

Other risks are Turkey’s growing independence from both the US and Europe, which could make life difficult for it in the coming year.

Britain faces the uncertainties of a post-Brexit world. Populist protests are on the rise, a measure of the discontent on the streets.

It’s not going to be an easy year, no matter where you live.

Swarm of court cases engulfs former Gupta mines

Written by Ciaran Ryan. Posted in Journalism

As business rescue of Koornfontein and Optimum appears to be drawing to a close. From Moneyweb.

Two of the remaining key assets in the now defunct Gupta empire – coal mines Koornfontein and Optimum – are the subject of yet more litigation, coming on top of the roughly 50 court cases batted away by the business rescue practitioners (BRPs) over the last two years.

A company called Westdawn is owed R112.5 million by Optimum and is the latest to bring a court action against the mine and the BRPs. It has filed an application in the South Gauteng High Court calling for Optimum Coal Mine to be liquidated on the grounds that it is “factually and commercially insolvent and unable to pay its debts”.

It previously applied to court for the liquidation of Koornfontein for largely similar reasons.

Read: Ghosts of the Guptas still haunt Optimum coal mine

Deposing for Westdawn, insolvency practitioner Chavonnes Cooper of CK Trust says there never was any prospect of rescuing Optimum and that it should have been liquidated some time ago. “What the BRPs have done however is to propose an informal winding up of the company, ostensibl[y] disposing of its assets under the auspices of business rescue.”

Read: Miners survive on charity while battle for Koornfontein mine drags on 

Westdawn, a mining contractor, says it is also a creditor of Koornfontein. It disputes the claims of Eskom and Centaur Investments as being “alleged contractual penalties” which therefore constitute contingency claims that fall under the Conventional Penalties Act. At a creditors’ meeting in December, Centaur and the creditors’ committee challenged Eskom’s voting rights.

The matter will now go to arbitration later this month to decide what weight Eskom should be given in deciding the way forward for the mines.

Three different business rescue plans for Optimum have been published.

The first, published in April 2018, suggested creditors would receive 12c in the rand for their claims. Eskom was claiming R1.6 billion in penalties for the non-delivery of coal to its power stations. While Eskom was paying Koornfontein R430 per ton for its coal, Optimum was getting less than half this. Centaur was not listed as a creditor in the first rescue plan.

Revised plan

The second rescue plan was published in December 2018 and proposed offering Eskom R1.1 billion for all its claims, while Centaur also had claims totalling roughly R1 billion. The BRPs proposed offering it a pre-commencement dividend of 71c in the rand. Both Centaur and Eskom received voting rights equivalent to their claims.

Centaur had previously brought an application before the high court in an attempt to interdict Eskom getting a vote in the Optimum business rescue proceedings. That application was later withdrawn by Centaur “pursuant to a settlement agreement allegedly entered into between the BRP’s, Eskom and Centaur,” says Cooper.

Westdawn had total acknowledged claims of about R320 million in the second plan, but these were inexplicably reduced to R112.5 million in the third plan.

Cooper says Westdawn’s claims were changed unilaterally, nor was it offered a dividend.

‘Sole right’ powers of BRPs

Cooper says the business rescue process does not allow the same checks and balances that exist in liquidation proceedings. Decisions of the master of the court to accept or reject claims in a liquidation can be taken on review in court, whereas in rescue proceedings the BRPs “have the sole right to admit the claim and quantify it”.

“A claim for damages, which we submit is the basis of the claims submitted by both Eskom and Centaur, would not be proved so easily in a liquidation scenario. In fact, it is only upon being empowered to do so by creditors, that a liquidator would be able to settle a claim for damages with a creditor failing which settlement that creditor would be obliged to institute an action in order to obtain an award,” says Cooper’s affidavit.

“The effect of the BRPs’ decision is to place the entire future of Optimum, insofar as it relates to its business rescue proceedings, in the sole discretion of Eskom and Centaur.”

Attorney for the BRPs Bouwer van Niekerk says all the cases, including that brought by Westdawn, are being opposed.

The Lurco case

Then there is the case brought by BEE mining group Lurco late last year to interdict the BRPs from selling Koornfontein to Black Mining Royalties (BRM), on the grounds that its much more generous bid of R500 million – about R200 million more than BRM’s winning bid – was defeated by an “irrational” change to the business rescue plan that required money to be deposited within five days.

This was impossible as Lurco’s funding had to be moved from an overseas bank account, which takes up to six weeks.

Read: Sale of Koornfontein coal mine hits legal snag 

Swiss-based suitor’s hefty ‘rejection fee’

Another case, brought by Amin Al-Zarooni – chairman of Charles King SA – claims the Swiss-based company has a written agreement signed in 2017 to purchase the Gupta holding company Tegeta for R2.9 billion.

It was to secure this right with a down payment of R66.7 million, but was R2.3 million short when payment fell due on October 22, 2017.

The R64.4 million that was deposited was used by the Guptas to pay salaries at various Gupta companies, including Optimum.

The Charles King case was rejected for lack of urgency in 2018, and will now go to arbitration.

Rescue practitioner Louis Klopper says the BRPs are required to execute the mandate of the creditors, and that the sale of Koornfontein will not be delayed by the pending court actions.

And we’re off: the breakout of precious metals, oil and bitcoin

Written by Ciaran Ryan. Posted in Journalism

The smell of war in the Middle East being the latest trigger. From Moneyweb.

Analysts have started revising forecasts for gold in light of the latest geopolitical disturbances in the Middle East. Image: Michaela Handrek-Rehle, Bloomberg
Analysts have started revising forecasts for gold in light of the latest geopolitical disturbances in the Middle East. Image: Michaela Handrek-Rehle, Bloomberg

Iranian missiles rained down on two US military bases in Iraq last night (Tuesday) in revenge for the assassination by the US of Iran’s most senior military commander last week.

Platinum group metals (PGMs), oil and bitcoin surged on the news, with investors diving for cover and steering clear of risk. Iran’s retaliatory response has panicked investors. Much hinges on US President Donald Trump’s likely response. A tit-for-tat exchange of missiles could quickly escalate out of control and, perhaps, be ruinous for Trump’s re-election chances later this year.

Palladium prices broke $2 000 an ounce in the last two days, continuing a trend that began in 2018. It is a primary ingredient in automotive catalysts, and is in short supply as carmakers shift from diesel to petrol-powered vehicles in which palladium is used.

On Tuesday platinum traded at around $970 per ounce, less than half the palladium prices, but is still up more than 10% from this time a year ago, buoyed by strong tailwinds in precious metals. Investing News reports that platinum demand remains restrained due to soft demand from diesel manufacturers.

The gold price, a perennial hedge against turmoil, is nudging towards $1 600 an ounce, and is now at a seven-year high.

It is already higher than many predicted it would be so early in the new year, boosted by massive central bank buying in China and other emerging economies in recent years.

Read: Gold hits highest since 2013 as Goldman backs bullion in crisis

Brent oil came within a whisker of $70 a barrel yesterday on fears that the world’s oil markets will be disrupted by events in the Middle East. Iran has repeatedly threatened to close off the Strait of Hormuz, through which a third of the world’s sea-borne oil passes, should it be attacked by the US.

Read: Oil shippers raise offers for Middle East route on Gulf risk

“The explosive moves witnessed in oil prices over the past few days highlight how sensitive the commodity is to geopolitical shocks,” says Lukman Otunuga, senior research analyst at FXTM. “Given how this development raises fears of more tensions in the Middle East, oil prices are poised to remain volatile in the near term with all eyes now on President Trump’s reaction and any signs of US retaliation.”

CNBC reported that the Dow Jones Industrial Average plunged 400 points overnight.

However, the carnage appears to have stopped there as Trump reported no US casualties from the Iranian missile attack. Trump has repeatedly pointed to his economic record – measured in lofty share prices – as a measure of his economic success as president. This may curb any appetite for a disproportionate military response against Iran.

“In many regards, the US-Iran situation has now surpassed the US-China trade war as the biggest risk to financial markets. This has been reflected in the current volatility,” says Nigel Green, CEO of financial advisory firm deVere Group. “It’s almost impossible to forecast what the market is going to do in the immediate future – and it is much too early to say what happens next and how investor sentiment will affect markets.”

Palladium prices in USD

Source: ShareMagic

The World Platinum Investment Council expects further gains for the metal, driven by increasing investor interest. The relatively subdued performance in 2019 was the result of a supply overhang, though platinum will continue to benefit from the rising value of palladium.

Bitcoin price in USD

Source: TradingView

Bitcoin, too, demonstrated its status as a digital safe haven as it surged $1 000 to break $8 400 in the last few days.

Gold price in USD

Source: ShareMagic

Analysts have started revising forecasts for gold in light of the latest geopolitical disturbances in the Middle East, with some forecasting a target of $2 000 an ounce in the coming years.

Brent crude oil price in USD

Source: ShareMagic