Denel denies LMT claims over Gupta influence


State owned arms company Denel has “categorically” denied that it has been captured by the Gupta family, after LMT Holdings accused it of diverting a contract for the Badger vehicle to VR Laser at the Gupta’s request.

Denel in a statement issued yesterday also said that it will oppose LMT Holdings’ business rescue application, which LMT approached the Pretoria High Court on Wednesday for as the diversion of the Badger infantry fighting vehicle contract has put the company in a difficult financial situation, according to court papers. The matter is due to be heard on 26 July.

Former LMT CEO Dr Stefan Nell in the court application said when Denel “awarded the remaining Hoefyster [Badger] contracts, previously promised to the company [LMT Holdings], to VR Laser, an entity affiliated to the Gupta family and the son of President Zuma…the conduct of [Denel] in this regard can only be described as state capture by proxy”.

VR Laser is partly owned by Ajay Gupta’s eldest son, Kamal Kant Singhala. VR Laser South Africa is doing steel cutting and fabrication for Denel Land Systems as part of the overall Badger project. The total value of the project is R12.7 billion with VR Laser’s original component making up R400 million of this. Nell alleges the R100 million a year, ten year contract with LMT is now going to VR Laser, giving them an extra R1 billion in work.

The Denel statement, issued by Vuyelwa Qinga, Denel communications officer, said the “alleged work or contract” referred to by Nell took place before the appointment of the current Minister, Board and the Acting Executives.
“The then Executive Directors of Denel who were Board members of LMT at the material times as alleged by Mr Nell as having acted in violation [of] fiduciary duties are no longer at Denel[‘s] employ or have been suspended,” the statement said.
“Denel is opposing Mr Stefan Nell’s business rescue application because there are no grounds for such in law, Denel has been single handedly (sic) loaning money to LMT to fund its operations despite the obstructionist conduct of Mr Stefan Nell.
“Mr Nell alleges that he has investors who are prepared to invest vast amounts of monies in the business but yet he does not want to disclose such persons. Denel is aware that a certain politician is attempting to loot Denel shares at LMT, the attempts by the said politician to hijack Denel shares using business rescue proceedings via Mr Nell will be vigorously opposed and will not succeed,” the hastily prepared statement read.

The Denel statement added that the company has provided support to LMT, such as shareholder loans; acquiring contracts; and managing commitments to creditors. “When challenges were picked up in the management of the company (sic). At LMT Denel provided a more experienced Chief Executive, seconded from the Denel head-office to LMT while retaining the former CEO and shareholder in a chief operations officer capacity.”

Nell said his removal as CEO of LMT allowed Denel complete control of the company.

According to Nell’s affidavit, LMT is struggling to pay salaries and suppliers because of inadequate funding from Denel, which is putting an R800 million Saudi Arabian vehicle contract in jeopardy. This Middle Eastern order could be worth up to R4 billion if all options are exercised for LM13, LM8 and LM18 vehicles. As a result the company by March was in “dire financial straits and could not service its outstanding order book”. Nell added that Denel rejected a proposal for LMT to get external funding as he had identified a buyer for R200 million worth of shares. He consequently sought business rescue at the courts.

LMT is 51% owned by Denel, with 29% belonging to Pamodzi Investment Holdings and 20% to LMT founders.

LMT specialises in ballistic, landmine and improvised explosive devices (IEDs) protection and the integration of these protection technologies into armoured vehicles, and has the ability to design and manufacture mine-protected vehicles with amongst others, flat or semi-flat floor mine protection.

LMT designed and qualified the flat floor landmine protection for the Badger infantry fighting vehicle. Among LMT’s other products are the Gecko 8×8 tactical vehicle, used by the South African National Defence Force, armoured truck cabs, the AV55 light-protected vehicle and explosive ordnance disposal vehicles.