Ending a three-year profit drought. From Moneyweb.
On the back of a 91% increase in international steel prices and a 47% bump in local prices, ArcelorMittal South Africa has stormed back into profits, announcing its best performance in 15 years on Thursday.
Earnings before interest, tax, depreciation and amortisation (Ebitda) came in at R8.6 billion for the year to December 2021. Operating profit swung from a loss of R963 million in 2020, when local and international markets were brutally interrupted by Covid-19, to a profit of R7.9 million for the 2021 financial year.
These promising results were far from effortless, says CEO Kobus Verster, involving the ramp-up and stabilisation of production post-Covid, putting in place improved safety systems, and dealing with the July riots and downstream labour labour strike and the impact this had on expert markets.
Unreliable electricity supply and worsening rail logistics, aggravated by a fire at Transnet’s Richards Bay facility, added to its woes.
The first half of 2021 saw a strong recovery in demand as steel inventories were re-stocked, resulting in firming prices and better margins. Demand remained strong in the second half, though prices were off their record highs.
Average international dollar steel prices increased by 91%, iron ore by 48%, coking coal by 82% and scrap by 68%.
An encouraging sign of the market buoyancy was the improvement in plant utilisation to 60% in 2021 from 42% in 2020. Crude steel production increased by 34%, or 769 000 tonnes, from 2.2 million tonnes to 3 million tonnes in 2021.
Also encouraging was the 25% jump to 4.5 million tonnes in apparent steel consumption, driven by the recovery in construction, mining and manufacturing.
Realised steel prices in US dollars increased by 62%, and by 47%in rand terms due to the strengthened US dollar-rand exchange rate.
Diversification of raw materials – primarily iron ore, coking coal and scrap – resulted in these costs growing just 10% compared with the 42% increase in international raw materials basket in rand terms. Raw materials account for 43% of cash costs per tonne.
Electricity tariffs went up 14%, and fixed costs by 47% to R7.4 billion as a result of a conscious decision to focus on improving reliability and quality.
Revenue for the year surged 61% to R39.7 billion. Net borrowings as a percentage of equity fell to 13.9% from 154.6% the prior year.
The outlook for global steel demand remains generally positive heading into 2022. In South Africa and neighbouring countries, it is likely that demand will ease back to more moderate growth levels, says ArcelorMittal.
While demand for steel remains high, prices have eased back from recent highs.
Prospects for the global steel industry depend to a large extent central banks hike interest rates, which in turn could result in slower growth and weaker demand for steel.
ArcelorMittal’s share price was down almost 8% following the release of the results, trading at R9.22 at around 1.30pm.
How Bosasa came to capture the prison systems in SA is likely to feature in the next instalment of the Zondo report; whistleblower Angelo Agrizzi paid a heavy price for his testimony. From Moneyweb.
To this day, former Bosasa chief operations officer turned whistleblower Angelo Agrizzi cannot understand why the state decided to arrest him while he was spilling the beans on the dirty dealings and bags of cash flying out the door at Bosasa’s Krugersdorp headquarters.
The arrest warrant was served on October 14, 2020, just as his first book Inside theBelly of the Beast – The Real Bosasa Story (Truth Be Told Publishers, November 2020) was about to be published. This was despite Agrizzi and other whistleblowers providing towers of evidence to the Zondo Commission of Inquiry into allegations of state capture.
“I was blindsided by the arrest,” Agrizzi tells Moneyweb.
He was arrested the same day as former ANC MP Vincent Smith, one-time chair of the National Assembly’s Portfolio Committee on Correctional Services, who had allegedly received R800 000, paid by Bosasa into his company Euro Blitz 48 in 2015 and 2016. Agrizzi claimed Bosasa also covered the costs of upgrades to Smith’s house. Smith has maintained that the money was not a bribe, but a loan for his daughter’s education.
The irony is that Agrizzi provided the evidence that led to Smith’s arrest. In return, he fully expected whistleblower protection from the state, especially as he had followed instructions given out to him by law enforcement that would guarantee his safety.
It’s treatment like this, says Agrizzi, that prevents others coming forward with damning testimony that could pull the country back from the abyss.
Evidence before the Zondo Commission suggests Agrizzi was offered hush money of R50 million to skip appearing at the Zondo Commission – a bribe Agrizzi refused.
But there were other attempts to silence him, as detailed in Agrizzi’s second book, Surviving the Beast – The Ugly Truths About State Capture And Why They Tried To Kill Me (Truth Be Told Publishers, September 2021).
Agrizzi was denied bail and then hurriedly escorted by a dozen or more armed security guards to a remote wing of Johannesburg Central Prison, otherwise known as Sun City. He was already in poor health, undergoing treatment for a list of ailments from diabetes to hypertension. The guards removed his oxygen machine, which was returned to the cell once Agrizzi protested that he needed it to breathe.
In his book, Agrizzi describes his first night in Sun City prison when two people entered his cell. He felt a hand on his neck, as if feeling for a pulse, and then the unmistakeable smell of almonds (often associated with cyanide poisoning).
His next memory is being pushed on a gurney through the corridors of Baragwanath Hospital, retching in agony.
When he insisted the bed in which he was lying was shocking him, he begged the six armed guards in the room to remove the plug from the wall. The guards sniggered, insisting he was hallucinating, though there were no signs of barbiturates or psychedelic-inducing drugs in his body.
One of the guards eventually kicked the plug from the wall and immediately the shocking stopped.
“I suppose I have always known that something like this was inevitable, from the moment I decided to become a whistleblower,” he writes in Surviving the Beast.
“I should have been wiser and more vigilant. I had angered too many people and now it was payback time.”
‘Marked for death’
The Zondo Commission had received intelligence that Agrizzi was marked for death. Doctors at Baragwanath later told Correctional Services that he was inches from death, and insisted he be transferred to Life Fourways Hospital for specialist emergency care.
It’s a long and harrowing story, detailed in his autobiographical account.
Two years later, Agrizzi says he still suffers from nerve damage to his feet and hands. On October 30, 2020, he was granted bail and the shackles were removed from his feet, though it would be a week later before he was released from the hospital – 52 days after being incarcerated at Palm Ridge Magistrates Court.
The final straw
In August 2016, says Agrizzi, he had had enough of working at Bosasa and tendered his resignation.
The moral burden of finishing daily prayer meetings by packing bags full of cash to pay bribes to key political figures became too much.
The final straw was a conversation overheard between Bosasa CEO Gavin Watson and a man called Louis Passano, who was trying to procure about 80 cattle calves “to further capture SA’s former president, Jacob Zuma,” he writes.
The “Nkandla Cattle Saga” was a plan hatched by Watson and Passano to extend their capture of the then president, having already pocketed much of the Correctional Services food supply budget.
Employees were getting restless, fearing their jobs were about to evaporate. They’d seen the bags of cash fly out the door. Bosasa quickly graduated from prisons catering to a services company involved in facilities management and the supply of thousands of items to more than 40 correctional services units, from equipment supply to catering, fencing and IT.
Much of this evidence is before the Zondo Commission and will likely be detailed in its next report due out in a few weeks: the R800 million prisons catering contract, for which Agrizzi alleges bags of cash were handed out to Patrick Gillingham, former CFO at Correctional Services, and Linda Mti, formerly national commissioner for the same department.
Most tenders in SA are predetermined, claims Agrizzi in his earlier book, Inside the Belly of the Beast. “The tender advert is nothing more than a formality to prove that other companies were given a chance to bid before the tender was awarded. The tenders that Bosasa won were no different.”
Agrizzi was a master at his craft, quickly establishing during a tour of Boksburg prison in Gauteng that meals that should cost R7 a person per day where costing R12.
Bosasa might have been corrupt to the core in securing tenders, but Agrizzi claims it never failed to deliver decent nutrition to the prisoners it was charged with feeding.
That’s not to say its invoices weren’t padded, but at least prisoners got a good meal. Before Bosasa came on board, the prisons system was handling up to 10 food-related court applications a week from disgruntled inmates.
Bosasa ended up feeding 144 000 prisoners in 37 facilities countrywide, and Agrizzi insists they handled this with efficiency and few complaints.
Agrizzi told the Zondo Commission that Bosasa paid Kevin Wakeford, formerly head of Armscor, R100 000 a month as a consultant, in part to bring his influence to bear on the South African Revenue Service (Sars) over an investigation into a Department of Home Affairs contract over the management of the Lindela Repatriation Centre in Krugersdorp, a deportation facility for illegal migrants.
When Wakeford took the stand at the commission, he refuted most of the allegations levelled against him by Agrizzi, saying he earned R50 000 a month for nine years, not R100 000, and accused Agrizzi of twisting facts to rope him into an enquiry where he did not belong. Wakeford also accused Agrizzi of trying to destroy Bosasa and force it into liquidation so that he could take over its clients, something Agrizzi denies.
Former Bosasa fleet manager Frans Vorster told the enquiry how Watson had instructed him to bump up profits at Lindela. This was not hard to do – just pack the centre with detainees.
Bosasa was paid a daily rate per occupant, so it had an incentive to ship as many illegal migrants to the facility as possible – which it apparently did, using vehicles that looked like SA Police Service vehicles used to transport prisoners.
At one point Bosasa was making upwards of R100 million a year from managing the facility, even though the number of detainees had dropped by about half the level of the early 2000s.
In all, Bosasa is reckoned to have made more than R12 billion in corrupt government contracts.
To keep this going, the company had to pay out between R4 million and R6 million a month in bribes, according to testimony before the commission by former Bosasa CFO Andries van Tonder, who has also turned whistleblower.
It wasn’t long before law enforcement started to develop an interest in Bosasa and that’s when Agrizzi alleges the company started paying bribes to former South African Airways (SAA) chair Dudu Myeni, former minister of water and sanitation Nomvula Mokonyane, and National Prosecuting Authority deputy head Nomgcobo Jiba.
These allegations have been denied, but Agrizzi says he was there – counting and packing the bags full of cash for distribution to Bosasa’s ever-expanding network of recipients, under instruction from his seniors.
Agrizzi’s books – the first of which was longlisted for The Sunday Times/CNA Literary Awards 2021 – detail how Myeni apparently dodged a court-ordered search and seizure warrant at her Richards Bay home, allegedly thwarted by compromised officials within the Hawks and with a little help from her protector, Zuma.
Myeni gave the Zondo Commission the runaround by failing to appear, and then when she did, refusing to answer questions put to her by evidence leader Kate Hofmeyr on the grounds that she may incriminate herself.
It remains to be seen how the Zondo Commission treats this testimony.
Asked how he survives these days, Agrizzi says he has virtually nothing left, his once sizeable fortune having been frittered away on legal fees, medical bills, and looking after some of the families left jobless after Bosasa went into liquidation.
It’s concerning, says Agrizzi, that those implicated in his evidence have evaded arrest and how charge dockets have ended up in the hands of people accused of serious crimes.
Watson, an anti-apartheid icon and rugby hero, died in a car accident in August 2019 when the Toyota Corolla he was driving ploughed into a pillar at the entrance to OR Tambo International Airport in Johannesburg.
The second meeting of creditors of the liquidated bitcoin scheme Mirror Trading International (MTI) ended with all investor claims being rejected on the grounds that they were ‘illegible’.
The only claim accepted by the Master of the Cape High Court, Zukile Mabusela, was from the trustee of JNX Online, a company set up by MTI founder Johann Steynberg and his wife Nerina. JNX Online was used by Steynberg to buy and sell bitcoin (BTC) and to pay creditors and employees of MTI.
Hendrik van Staden, representing 920 creditors to the value of R229.8 million, told the Master he was not satisfied that the claims had been rejected.
“I want to remind liquidators that they are there to act in the best interests of investors and/or creditors and they must be transparent and engage with creditors, and I will be communicating with them in the interests of the net losers in MTI, so that justice can prevail. Let’s clean up the liquidation industry in SA and make sure liquidators are held responsible.”
Van Staden said he could not accept that all claims are illegible, and pointed out that investor claims were likewise rejected at the first creditors meeting held in 2021.
The rejection of claims prejudices investors by denying them the opportunity to vote on any resolutions that were tabled by the liquidators.
‘Blank cheque’ anger
Creditors are reportedly angry that these resolutions grant the liquidators wide powers to hold inquiries and do whatever is necessary to chase down missing bitcoin, as they feel this is a blank cheque to run up costs at their expense.
As Moneyweb previously reported, MTI was declared the world’s biggest crypto scam in 2020 by Chainalysis. By some accounts, more than 29 000 BTC passed through the system, representing a value of more than R19 billion at current bitcoin prices.
MTI was red-flagged by the Financial Sector Conduct Authority (FSCA) in 2020 for trading without a licence. The scheme relied on multi-level marketing to grow its member base to more than 200 000 members, offering returns of up to 10% a month on bitcoin deposited with the company. The FSCA found no evidence of any successful trading that could account for returns like this.
MTI CEO Johann Steynberg was recently arrested in Brazil, after fleeing South Africa more than a year ago when investors’ requests for withdrawal of funds went unanswered. The company was subsequently placed in liquidation.
Steynberg reportedly faces deportation either to the US or SA.
Liquidators ‘incapable’Chris Edeling, representing two creditors, told the creditors meeting on Friday (February 4) that the Master was correct to reject the claims, not only because of illegibility, but because of bad causes of action.
When Sybrand Tintinger, the lawyer representing the liquidators, attempted to call the meeting to a close, Chris Kriel, representing about 12 000 investors, expressed his frustration that the communication from the liquidators was null and void. “You [the Master] said these liquidators need to set a threshold for a burden of proof for this liquidation.
“The liquidators are being obnoxious,” he said.
Some 60% of money invested in MTI came from SA, the other 40% from abroad. The liquidators had access to the back office computer systems so they were in a position to reconstruct who had invested bitcoin and how much, but this had not happened.
“To reject thousands of these claims on a technicality from the liquidators where they didn’t communicate that technicality to the investors is obnoxious. I am going to publish this meeting across the world and tell the people how they are being treated by these liquidators,” said Kriel.
He argued that the liquidators were incapable of doing their assigned jobs.
Though they had access to the backend records, they had not set a burden of proof that investors could easily follow, so they simply rejected all claims out of hand.
“I challenge these liquidators to tell us how they intend to prove these claims. One year later they haven’t tabled a single claim,” added Kriel.
Henry Honiball, representing about 18 000 members, said confidence in the liquidators “is not good at all”.
Part of the problem is that investors attempting to submit claims do not have access to the back office systems that recorded their BTC deposits into MTI. “The back office made available by the liquidators has been tampered with. We have people who are devastated out there, and liquidators are there to work for us.”
Shareholder claim also rejected
Clynton Marks, 50% shareholder in MTI and a creditor to the tune of R135.6 million in bitcoin loaned to MTI, likewise had his claim rejected.
His counsel, John Suttner SC, asked why the claim was rejected as it was not a claim for the return of an investment. It’s a clear liquidated claim, said Suttner.
The Master replied that the Marks claim was not substantiated.
Several creditors are reportedly about to take the liquidation on review for what they regard as multiple irregularities, such as the blanket rejection of claims, which denied creditors the right to vote on resolutions that allow the liquidators to run up costs at their expense.
Responding to criticism that the liquidators had failed to respond to correspondence from creditors, Tintinger replied that all correspondence was attended to, and invited creditors to communicate with the law firm. However, those purporting to act on behalf of a group of creditors must supply powers of attorney.
Part of the problem faced by liquidators is that there were groups where MTI winners – those who withdrew more than they put in – were mixed up with losers. Some creditors were claiming their BTC still belonged to them as they had deposited the cryptocurrency into a club.
He said the liquidators maintained an open door policy and had nothing to hide.
Mabusela attempted to allay the fears of angry creditors, saying there would be future special meetings of creditors to prove all claims.
The real tragedy
The real tragedy of the MTI scandal was recorded in the comments section to the side of the Zoom meeting.
“What happened to the 8 000 BTC the liquidators said they found?” asked one commentator
“If the liquidators have done nothing in this past year, we can assume they will not be drawing any fees from the members,” said another.
“What about the thousands of people whose lives have been absolutely devastated?” wrote another.
“People committing suicide, people living in garages.”
All this meeting proved is that there is a long and potentially litigious road ahead before the MTI matter is laid to rest.
Something the Guptas were masters at. Shout ‘change management’ in a boardroom and all manner of snake oil salespeople will appear. From Moneyweb.
In the book The Witchdoctors, authors John Micklethwaite and Adrian Wooldridge outline the swathe of destruction carved through corporate America by high-priced consultants under the guise of “change management”, “leadership training”, “total quality management” and a dozen or more catchy marketing gimmicks to convince you that your management is sub-optimal.
Anyone who had read this book, now more than 20 years old, shouldn’t have been surprised to learn that consultancy Bain formed such an integral part of the state capture project.
The first instalment of the so-called Zondo report recommends that all of Bain’s public sector work in SA be investigated.
Bain repaid R164 million plus interest for money it earned from the South African Revenue Service (Sars) after an investigation chaired by retired judge Robert Nugent detailed the extent to which the once exalted tax agency was hobbled by incompetence and corruption.
Daniel Mantsha, an attorney struck off the roll for misconduct for “something to do with trust monies” and then readmitted, was deemed competent enough to chair Denel. Former public enterprises ministers Lynne Brown and Malusi Gigaba were on hand to enable the state capture project.
In 2011, Transnet embarked on the so-called Market Demand Strategy (MDS), helmed by CEO Brian Molefe and CFO Anoj Singh.
As soon as you signal an aggressive change strategy such as this, the Guptas cannot be far behind. And that turned out to be the case.
It was the same at Denel where VR Laser was the vehicle for the capture of a state-owned arms producer making decent profits in 2015 and winning clean audits from the Auditor-General. To capture Denel, those executives refusing bribes and standing in the way of the Guptas – who merrily clothed themselves in BEE colours to nudge out better qualified competition – had to be removed.
Control of the decision-making
State capture at Transnet involved a systematic scheme of securing illicit and corrupt influence or control over the decision-making, says the latest Zondo report.
“Corrupt actors sought to gain control over staff appointments and governance bodies to influence large procurements and capital expenditure by changing procurement mechanisms, such as the use of confinements rather than open tenders, the altering of bid criteria to favour corrupt suppliers, and the payment of inflated costs and advanced payments.
“Corrupt procurement practices were sustained by bringing approval authority for high value tenders under centralised control the internal controls designed to prevent corruption.”
This was the playbook for capturing the entire public sector procurement budget.
People at Transnet who knew and cared about the company were marginalised, with greater reliance being placed on consultants like McKinsey, Regiments and Trillian.
Cash drained, expertise lost
When the consultants come marching through the door, you know what happens next: the cash spigots are thrown open and drained for consulting fees, decades of organisational know-how is thrown out the window, and dodgy contractors are let in the door.
It happened at Transnet, SAA, Sars, Denel and scores of other state-owned companies. The consultants became the gatekeepers and controllers of billions of rands in spending – something Treasury was concerned about, but was frequently overridden by cadres with protection from the highest office in the land.
When former president Jacob Zuma had your back, who were you going to fear?
There’s nothing wrong with benchmarking performance and seeking out ways to improve performance. Companies that don’t do this get eaten alive.
The problem comes when neatly coiffed consultants in fine suits with MBAs from impressive universities, but who’ve never actually run a business, convince you that your business methods are ancient and unworkable.
There are all kinds of invisible threats out there, and in a few years you won’t exist unless you swallow their magic pills.
Your competitors are embracing some new buzzword to do with change, improvement, excellence, and are turning their businesses upside down because they want that extra percentage point or two lift in profits. Business books are flying off the shelves, marketing some new fad that is just another business grift.
All this is extensively coded in the latest Zondo report, which explores what went wrong at Transnet and Denel.
Transnet the primary target
In raw financial terms, Transnet was the primary target for state capture.
Paul Holden of Shadow World Investigations submitted a dossier to the Zondo Commission estimating that Transnet contracts to the value of R41.2 billion were irregularly awarded for the benefit of entities linked to the Gupta family or their local point man, Salim Essa.
Much of the detail of Transnet’s capture is in the public domain: the R60 billion paid for 1 259 locomotives, split over three contracts, being the principal cash cow that bankrolled so much else the Guptas were involved in. The report explains how the locomotive bidding process was corrupted by the Guptas for their eventual benefit.
Evidence heard at the Zondo enquiry shows how McKinsey agreed to appoint Regiments as its supplier development partner, subject to Regiments agreeing to share 30% (later increased to 50%) of all income received from Transnet.
More than R1 billion was laundered through various shell companies nominated by Essa and his associate, Kuben Moodley. These were pure money laundering activities, with no legitimate business activities.
The consultants were all over the state capture enterprise.
The next time a consultant with an interesting haircut presses a card into your palm and promises all kinds of wonderful goodies, run for the hills.Access the Zondo report on Transnet here.Access the Zondo report on Denel here. Tweet
Coming just weeks after OVEX announced its withdrawal from crypto arbitrage, VALR says its exit is to comply with banking partner requirements. From Moneyweb.
Crypto exchange VALR announced this week that it will no longer be offering crypto arbitrage to new customers from January 31, and the arbitrage service to existing customers will be wound down by February 28.
“The decision to discontinue our arbitrage service has been taken to comply with some of our banking partner requirements,” says VALR in a statement. “No other VALR services are affected and your funds remain secure. You will continue to have access to Africa’s largest marketplace for crypto assets with the ability to buy, sell and store over 60 cryptos on VALR.”
Crypto arbitrage became hugely popular in SA by allowing investors to profit from price differences in crypto assets between overseas and local exchanges.
The graph below from CURRENCY HUB shows an arbitrage gap of 2-4% in True USD (TUSD), a stablecoin backed by US dollars that can be bought cheaply overseas and sold in SA for a higher price. This percentage is the gross premium, before costs – which can be 1-2% – are deducted.
The ‘arb gap’, as it is known, has declined in recent years – from 3-8% four years ago (and as high as 20% on occasion) to a gross 2-4%.
Ironically, arbitrage providers believe the exit of OVEX and VALR removes competition from the market and may cause the arb gap to widen.
The amount of funds available for arbitrage by an investor is limited to a maximum R11 million a year – a R1 million Special Discretionary Allowance (SDA), and a R10 million a year Foreign Investment Allowance (FIA), which requires South African Revenue Service (Sars) approval, and only if a tax clearance certificate has been issued to the client.
The same arbitrage opportunities are available in other cryptos like Bitcoin (BTC) and Ethereum (ETH).
Speaking to Moneyweb, VALR chief operating officer Gianluca Sacco says crypto arbitrage was a small part of its business, and the decision to close it down is due to an update to the requirements of its banking partners. “We value our banking relationships, which is why we felt it prudent to close down the crypto arbitrage business and focus on our core business, which is the crypto exchange.”
Crypto arbitrage is largely unregulated, though it does require purchasing forex from a licensed forex dealer, and all crypto arbitrage providers put clients through Know Your Customer (KYC) checks.
Banks feeling threatened?
Asif Aziz, chief technology officer for crypto exchange LIBEX, says the company was likewise pressured by one of its banking partners to suspend its arbitrage service, prompting it to move its account to another bank better disposed to crypto arbitrage.
Banks have reportedly been hostile to crypto arbitrage for some time, evidently seeing customers purchase large amounts of forex for export, without paying much heed to the return flow as these crypto trades were closed out and profits recycled back to SA.
Arbitrage trading became something of a cottage industry in SA as scores of investors saw it as a relatively risk-free way to make profits. While less risky than straight crypto investing, there are risks associated with crypto arbitrage, notably the danger of an adverse movement in currency or crypto prices while the trade is in play, or that any one of the crypto service providers involved in the chain goes bust.
One company that stands to pick up market share from OVEX and VALR is CURRENCY HUB, which is the only provider in SA with its own financial services and forex trading licence.
Being able to offer forex in-house, with the discretion to time the market and execute trades on behalf of the client gives it additional fat to cut margins when needed to help lift the net margin for the client to 1%, says Andrew Ludwig, founder of CURRENCY HUB.
“Forex costs normally eat 0.3-0.6% out of the margin, and that’s before the arb provider has taken a cut. Recently, margins have been so low that some arbitrage service providers have been banking losses for their clients.”
Law enforcement agencies should investigate directors who stood aside while colleagues who stood up to corruption were suspended. From Moneyweb.
Former Denel chair Daniel Mantsha, who was appointed by former public enterprises minister Lynne Brown, and other members of the 2015 Denel board played a critical role in helping to capture Denel for the Guptas, according to the State Capture Commission chaired by Deputy Chief Justice Raymond Zondo.
Part 2 of the Zondo report released on Tuesday says Denel was once highly regarded internationally, yet it is now “almost on its knees”.
Denel was under capable management in the form of CEO Riaz Saloojee, chief financial officer Fikile Mhlontlo and company secretary Elizabeth Africa, but they were removed by Mantsha, a former attorney struck off the roll for misconduct.
Astonishingly, then minister Brown saw it fit to appoint Mantsha to head Denel.
So began the Gupta capture project, led by Mantsha and other former Denel board members who supported him.
Those who supported Mantsha in his efforts to suspend the three directors who stood in the way of the Gupta’s capture of Denel are unfit to be directors of a company, says the report.
It recommends law enforcement agencies investigate possible breaches of the Public Finance Management Act (PFMA) with a view to prosecuting the board directors during this period.
Who should take action, and how
Denel, the Department of Public Enterprises, and the Companies and Intellectual Property Commission (CIPC) all have standing to bring appropriate proceedings against Mantsha and his cohorts, and “it is therefore recommended that they all be asked by the Government to consider bringing such proceedings”.
One of the recommendations made by the Zondo Commission is to make intentional abuse of public power a statutory offence.
“Such potential violations might range from the case of a president of the Republic who hands over a large portion of the national wealth, or access to that wealth, to an unauthorised recipient to the junior official who suspends a colleague out of motives of envy or revenge.”
The commission bemoans the inadequacy of punitive measures in SA law which allowed abuses at Denel to proceed occur.
Two forms of abuse were noted: interfering in board composition to violate the Companies Act and other laws; and, suspending executives for improper purposes. Such abuses pervade our public life, says Zondo.
The recommended penalties include a fine of R200 million or imprisonment for up to 20 years, or both.
This would apply to any official at national, provincial or municipal level acting “otherwise than in good faith and for the purposes for which such power was conferred,” says the report.
Such penalties should cool the heels of those officials who have robbed the public purse blind and then walked away unharmed.
Several contracts awarded by Denel to Gupta-linked VR Laser were irregular and in breach of the Constitution, which mandates fairness, equitability, transparency, competitiveness in all state contracting.
Take power away from politicians
The appointment of CEOs and CFOs cannot be left solely in the hand of politicians because of their proven failure to protect these institutions from ending up dependent on bailouts. The report recommends the creation of a body tasked with identifying, recruiting and selecting the right talent for positions of CEO and CFO at these entities.
The reputational damage that Denel suffered from its capture and the fact that control passed into unscrupulous hands was enormous. The evidence shows that rebuilding Denel will take a long time – if it does not go under.
VR Laser, once the primary supplier of steel armour plate within SA, fell along with the rest of the Gupta companies because of the withdrawal of its banking facilities and its association with the Gupta family.
Salim Essa (a close Gupta associate) and the Guptas manoeuvred themselves into VR Laser as a vehicle to capture Denel.
The report concludes that former public enterprises minister Malusi Gigaba abetted the Guptas and Essa in their capture project.
Once the objecting executives were out the way, VR Laser was able to participate “in any lucrative undertaking in which Denel became involved within the borders of the Republic” and, through the Denel Asia joint venture, outside these borders.
Through the Denel Asia joint venture, the Guptas presumably thought they would gain access to the worldwide arms industry.
Former minister Lynne Brown is also implicated in the report, with the commission rejecting her claim she could not remember phone conversations between herself and Essa during the period when appointments to the board were being made.
“Why would she lie about her telephone conversations with Mr Essa. The only possible conclusion is that Ms Brown was a witting participant in the Guptas’ scheme to capture Denel and Eskom,” reads the report.
The commission concludes that she was assisting the Guptas based on how she dealt with certain matters relating to state-owned entities (SOEs), and cellphone records between her, Essa and Tony Gupta.
She failed to come to the assistance of Saloojee when he and two fellow executives were suspended, even though she had previously commended him in public and he was now accused of wrongdoing in relation to a transaction that had been comprehensively vetted by her predecessor, Treasury and the Competition Commission.
The Guptas were not prepared to compete for Denel’s business. They pressured Saloojee to give preference to VR Laser, their chosen vehicle for capture, and orchestrated a meeting between him and his boss, then public enterprises minister Gigaba.
As always, the meeting – brief as it was – took place at the Gupta compound in Saxonwold, Johannesburg. When Saloojee would not play along, steps had to be taken to get rid of him. The means used to do this was the end of the term of office of the members of the 2011 board.
The commission then questions why Brown chose Mantsha as board chair, a man who had previously been struck off the roll of attorneys, “for something to do with his trust account”, and then readmitted as an attorney.
“Surely, a prudent minister would have had nothing to do with bringing an attorney who had been struck off the roll of attorneys for something to do with his trust account into the board of an SOE, not to mention making him the chair of such a board.
“Were there no other attorneys who had never been struck off the roll, if the board required an attorney? Gauteng has thousands of attorneys.”
Denel was a juicy target, showing a profit (a rarity for an SOE at the time) in 2015, and was given a clean audit by the Auditor-General.
The report focuses on several contracts awarded by Denel to VR Laser – two so-called Single Source Contracts awarded by divisions with the group called DLS (Denel Landward Systems) and DVS (Denel Vehicle Systems) for complex armour steel fabrications and related steel products, extending for a period of 10 years.
Questions arose within Denel about VR Laser’s ability to fulfill complex projects such as this, but such objections were brushed aside. A third “hulls contract” was awarded by DLS to VR Laser.
By March 2021, it was reported that Denel was in serious financial trouble and was battling to pay salaries and creditors. It needed another R500 million to stay afloat.
This was despite government extending guarantee facilities of R5.93 billion and Treasury stumping up R1.8 billion for recapitalisation, on top of R576 million allocated to it for the 2020/21 financial year.
Evidence presented to the commission shows Denel improving its financial position steadily until 2015, when the Gupta capture project rolled into motion. It was downhill from there.
The report is loaded with explosive material, such as Saloojee being asked by Tony Gupta why he would not take money.
There was no attempt by the Guptas to hide their corrupt plans.
They were ordering around ministers, directors-general and chief executives, who they would berate for “not co-operating” when bribes were refused.
They acted as if they ran the country – which, it seems, they did.
Unifying the two parent companies into one, BHP has created a potential capital gains tax headache for some shareholders. From Moneyweb.
BHP on Monday announced that it had simplified its corporate structure with just one primary listing under BHP Ltd on the Australian Stock Exchange (ASX), a secondary listing on the JSE, and a standard listing on the London Stock Exchange (LSE).
The company will also maintain an American Depositary Receipt programme on the New York Stock Exchange (NYSE).
The company previously held two primary listings, trading as BHP Ltd in Australia and BHP Plc in London.
This meant it had to have two sets of annual general meetings, abide by two sets of laws and two tax residencies.
The dual company structure arose from the merger with UK-based Billiton in 2001.
Trading in BHP Plc was suspended on the JSE and LSE on Monday (January 31), following the finalisation of the restructure.
BHP shares hit an all-time high last week on the JSE above R500, following completion of the unification programme and a production progress report suggesting the pivot to potash and away from thermal coal is moving according to plan.
The group expects to complete the merger of its petroleum business with Woodside by the second quarter of 2022, a move that improves its carbon emissions output.
BHP Plc shareholders will receive one new BHP Ltd share for every BHP Plc share held.
BHP CEO Mike Henry told shareholders last year that a unified corporate structure would make the company more agile, “with the strategic flexibility required to shape our portfolio to deliver value through producing the commodities needed for continued economic growth, improved living standards, electrification and decarbonisation”.
In a note to clients last week, Sanlam Private Wealth’s head of equities David Lerche advised that the transaction should result in a disposal at market value of all BHP Group Plc shares in exchange for BHP Group Limited shares.
Capital gains tax
“As a consequence, South African tax resident shareholders holding BHP Group Plc shares on the date in question may be subject to Capital Gains Tax (CGT) resulting from the event,” wrote Lerche.
Sasfin Securities deputy chair David Shapiro says the unification of the BHP shares will create a more vibrant market globally for the shares, and should narrow the price gap between London and Sydney.
“Even though the assets were the same [between BHP Ltd and BHP Plc], the stock was never fungible, which meant the price discount between London and Sydney would never close. Most of the stock was historically traded in Australia, and I think the new corporate structure will close the gap and make it simpler for investors and management in a number of ways, for example, when it comes to raising finance.”
Shapiro tells Moneyweb Sasfin Securities’ legal advisors agree that CGT will be payable post the unification.
“This is rather like the tax event that was created when Prosus and Naspers split into two companies [with Prosus housing Naspers’s internet assets outside of SA]. Naspers shareholders had no say in the matter but had to stump up CGT as a result of the split.”
Sanlam Private Wealth says the unification simplifies the dividend funding arrangement, as until now BHP Ltd needed to transfer cash to BHP Plc, which leads to a loss of tax credits available for Australian investors. It will also serve to significantly reduce the complexity of future corporate actions.
The proportion of earnings from the Plc business has decreased from around 40% in 2001 to less than 5% today, making the current structure inefficient, with cash increasingly needing to be transferred from Ltd to Plc to meet dividend obligations.
The CGT calculation
The capital gain will be calculated as the proceeds on the disposal less the base cost of the shares.
Sanlam Private Wealth says 40% of the taxable gain should be included in an individual’s taxable income, which will then be taxed at the marginal tax rate (with a maximum effective rate of 18%).
Where the shareholder is a company, 80% of the taxable capital gain will be included in the company’s taxable income and taxed at 28%, resulting in an effective tax rate of 22.4%.
SA trust clients would be subject to an 80% inclusion rate and an income tax rate of 45%, resulting in a 36% effective tax rate.
Better access to global markets
Henry told shareholders last year that the company would retain listings in the UK, US, South Africa and Australia, “providing BHP with continued access to global markets and giving shareholders the opportunity to benefit from our portfolio, management and operating performance for long-term value”.
Non-executive directors will in future serve BHP Group Ltd, not BHP Plc, and Henry’s contract of employment has been amended to reflect the fact that he will serve as CEO of BHP Group Ltd only, and not Plc.
The objective was to extend the iron grip of the state over the commercial life of the country. From Moneyweb.
Appearing before the Judicial Commission of Inquiry into Allegations of State Capture (Zondo Commission) in August 2021, President Cyril Ramaphosa could not recall whether minutes of the now infamous cadre deployment committee meetings were kept during his tenure.
Evidence leader Paul Pretorius seemed exasperated at the response. As well he might.
It’s long been suspected that the ANC packed state institutions with party commissars, but the evidence was patchy. Now it looks more certain and casts an ugly shadow on all public sector appointments, whether innocent or not.
The DA managed to get its hands on the minutes of the so-called cadre deployment committee within the ruling party that vetted and advanced the names of the party faithful for positions in 88 state institutions, including courts, state-owned enterprises (SOEs) and government departments.
These minutes only go back to 2018, and mysteriously stop once Ramaphosa became national president (in May 2019).
It was these earlier minutes that Ramaphosa had trouble remembering when questioned at the Zondo commission, but these minutes make reference to earlier records that the DA is now hunting down.
If they’re anything like the ones from 2018, we have to rethink our understanding of the state capture project. We may yet learn that the Guptas were just one, albeit significant, cog in that machine.
Here’s what we know: from May 2018 to May 2021, the cadre deployment committee summoned 29 ministers and deputy ministers as well as Ramaphosa himself to direct the appointment of ANC cadres to key positions. Being able to whistle up cabinet ministers and directors-general suggests considerable administrative heft.
Even Ramaphosa had to bow before the committee.
In one meeting he apologised for failing to consult it when appointing the SOE Council.
“The very existence of this committee is so toxic to the country that it casts suspicion on competent and hard-working officials within the public sector,” says Leon Schreiber, the DA’s public service spokesperson told Moneyweb.
On December 3, 2018, the deployment committee met for three-and-a-half hours, with then energy minister Jeff Radebe and his deputy in attendance. Among the items for discussion was the need to fill eight vacancies on the Nuclear Energy Board, plus a slew of appointments in other companies within the energy portfolio, including PetroSA, the Strategic Fuel Fund, i-Gas, the African Exploration Mining Company, and the Nuclear Energy Company of SA (Necsa) as well as its medical isotopes subsidiary NTP.
The timing of this cadre deployment committee meeting and the presence of Radebe is curious, coming as it did in the midst of immense managerial turmoil at Necsa, apparently orchestrated by Radebe.
As Moneyweb reported in January 2020: “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.”
Commenting this week on the minutes detailing the committee’s deliberations on Necsa and NTP, Kemm told Moneyweb: “[This is] staggering. So it shows that the incoming chairman [Rob Adam] was a loyal party member.
“Also very interesting is the bit about the NTP board. The NTP board had nothing to do with government. It was entirely selected by the Necsa board, which effectively was me and the CEO, with our proposal being ratified by the Necsa board. So Radebe was trying to dictate the NTP board too, it would appear.”Read: Former Eskom chief nuclear officer appointed chair of Necsa
Several new appointments were made by Radebe to fill the slots created by his dismissal of the entire Necsa board, though it is unknown what their party affiliations were.
When it came to selecting a whole new board at state-owned forestry company Safcol, former public enterprises minister Pravin Gordhan was tasked with providing six names, while the committee was to provide four.
The committee maintains a separate CV database and appears to operate as a kind of shadow employment agency.
Names of candidates were supplied to Gordhan with the presumed intention of posting them within SOEs and other agencies under his control.
The committee was signing off on the reappointment of the National Consumer Commission, and repeated references were made to candidates’ length of membership of the party. Loyalty to the party seems to have been the overriding concern, taking a leaf from the Soviet Communist Party playbook where party membership was seen as the surest path to career advancement.
The deployment committee also busied itself with judicial appointments, according to the minutes.
Appointments of judges, both in the Constitutional Court and lower courts, was discussed, apparently usurping the powers of the Judicial Service Commission which is tasked with vetting and selecting judges.
The committee left little to chance, with mid-level positions being discussed and names advanced, down to regional water board and municipal postings.
The committee deployed ANC cadres to public sector positions via two mechanisms, says Schreiber: by putting forward specific names for specific positions, and by a system of job reservation whereby the committee apportions positions between itself and the relevant appointing authority, usually the minister.
Where to now?
Schreiber tells Moneyweb that a complaint against the ANC has been lodged over cadre deployment with the Public Service Commission, and a class-action suit of people wrongfully dismissed due to cadre deployment is now being considered.
“Most important of all, we have to get a ruling declaring this unconstitutional,” he says. “We’re also proceeding with our court application to obtain the minutes of the committee’s meetings prior to 2018. We need to understand how deep this cancer goes and we need to make sure it is never allowed to happen again.”
The ANC has yet to officially respond to the DA’s analysis of cadre deployment, which suggests party loyalty trumps competence, and identity markers like race, gender and geographic origin decide who gets appointed to positions of power.
The DA wants the Public Service Commission to determine whether illegalities have taken place – and if so, it wants all the appointments set aside.
Perhaps what will be more interesting is a precedent or two at the Labour Court with rulings in favour of candidates who were overlooked for positions because they backed the wrong party. Once that happens, the cadre deployment machine will dissolve in shards.
The fallout from this revelation will continue for months and perhaps years, as cadre deployments are challenged in courts, and in the media.
These appointments cannot be divorced from the billions of rands stolen and the breakdown in public service delivery that went into the pockets of a few thousand lucky winners. What these minutes appear to show is a rot so systemic that even corruption-fatigued South Africans will have a hard time appreciating just how decrepit things have become.
But as the chart further down shows, we’ve been here before. After peaking above R300 000 in December 2017, BTC dropped 84% in the subsequent year.
There were two other pullbacks of 80% or more – in 2013 and 2016.
The S&P 500 index is down 8% from its all-time high at the start of the year.
Cryptocurrencies are showing signs of stabilising after a period of skittish trade, triggered by blunt signals from the US Federal Reserve that the days of easy money may be over – for now.
Four or more interest rates hikes are likely in 2022, along with a freeze on asset purchases and a reduced Federal Reserve balance sheet. Geopolitical tensions in Ukraine and supply chain disruptions in the US have added to investor worries.
So far, cryptos have taken the deepest gashes, with price drops of 45% or more, followed by tech stocks (the Nasdaq is down 14% from its November 2021 peak).
Mark E Jeftovic, founder of Bombthrower and CEO of easyDNS.com, points out that bitcoin typically experiences four pullbacks of 20% or more a year.
“I’ve seen worse. [Lots] of times. We will see worse in the future. We may even see worse now.
“This is what an unfettered, unmanipulated, non-curated market looks like,” says Jeftovic.
If the Federal Reserve follows through on promises of four or even seven interest rate hikes this year, this will likely trigger a $400 trillion exodus from the global bond market and some of this will end up in cryptos.
If even a small fraction of panicked capital in search of sanctuary from a falling bond market finds its way into bitcoin, there will be a monumental decoupling of cryptos from stocks and bonds.
Cryptos, led by bitcoin, have shown a correlation with traditional financial markets in recent months, but Jeftovic says BTC should be seen as a short on fiat currencies and bonds and a “never [expiring] call option on long volatility”.
“Bitcoin may more accurately be viewed as the Short Everything trade,” he writes.
Source: CoinMarketCap and Visual Capitalist
Kraken Intelligence’s technical analysis of the market should give long-term crypto holders some cause for hope.
BTC is trading at 1.85 times above its 200-week moving average ($19 427), down from last week’s multiple of 2.19 times. Should it return to its long-term historical average of 10-15 times above the 200-week moving average, this would imply a price of $194 270 to $291 405.
This is not to suggest that cryptos could not fall further from current levels.
Blockchain research firm Glassnode says long-term bitcoin holders appear unfazed by the recent price drop. “The proportion of long-term holder supply has actually returned to a modest uptrend, which indicates a general unwillingness for this cohort to liquidate,” it says in a recent blog post.
“Alongside declining prices, investors have capitulated over $2.5 billion in net realised value on-chain this week. The lion’s share of these losses are attributed to short-term holders whom appear to be taking any opportunity to get their money back,” says Glassnode.
Steel producer ArcelorMittal expects to end its three-year profit drought with earnings per share of between R5.80 and R6.10 for the full year to December 2022, according to a Sens announcement released on Tuesday (January 25).
“The headline earnings per share are expected to improve from R1.90 headline loss per share for the comparative period to a headline profit per share within a range of R6.00 and R6.30 per share for the period (representing an improvement of more than 100%),” says the Sens announcement.
The company has reported profits in just one out of the last five years, citing sluggish domestic economic growth, volatile currency movements, Covid shutdowns, Chinese production cuts and regulated tariffs among the reasons for the poor performances.
Once the Covid lockdowns were announced in early 2020, some were questioning whether ArcelorMittal could survive.
The board itself in the 2020 annual report outlined the fragility of its commercial underpinnings: “In 2020 ArcelorMittal South Africa confronted uncertainties and threats to its very survival which few steelmakers anywhere in the world had ever contemplated,” it said.
“In the previous year – indeed in most recent years – our financial fortunes were so tenuous that our sustainability was being questioned by some of our most important stakeholders.”
The economic consequences of the Covid shutdowns on steel demand were evident in the 20% fall in SA’s apparent steel consumption to 3.7 million tonnes for the year to December 2020, according to the company’s 2020 financial results.
Financial performance was also impacted by increases in steel imports from Russia, China and Taiwan.
The company was also affected by the civil unrest in July 2021, which impacted production and shipments.
International steel prices strengthened in 2021, giving steel producers a reprieve from the brutal margin cuts of the previous two years.
In 2018, ArcelorMittal announced sweeping initiatives to return the group to profitability and generate sustainable positive cash flows.
Evidence of this transformation started to appear in the results for the year to December 2019, when its internal business transformation programme yielded R1.5 billion in benefits – a feat that was matched in 2020.
Global steel production remained flat in 2020 at about 1.8 billion tonnes, resulting in steel rebar prices declining 3% and average international US dollar steel prices falling 4%.
By 2020, ArcelorMittal’s production and sales volumes fell to roughly half what they were in 2018 as the Covid economic crash started to bite. Plant utilisation dropped to 49% in 2020, but had returned to 80% in the first part of 2021.
There was evidence of a turnaround in 2021, with the expectation that financial performance would register a healthy improvement in the second half of the year.