Johannesburg City loaned R290 million to Denel through an unsecured deal and now Denel cannot pay the money back, Mayor Herman Mashaba has said.
In a statement on 8 June, Mashaba said he was told on 7 June that Gupta linked associates, through Regiments Capital, placed City funds at risk through unsecured lending to Denel.
“As part of the City’s investment structure, the City utilises a sinking fund to pay back loans and investments made to the City, amounting to over R18 billion. In 2012, the City of Johannesburg, under the leadership of Parks Tau, was alleged to have rigged a large tender in favour of Regiments, a Gupta-connected empowerment firm, to manage this sinking fund.
“Regiments was appointed to perform the fund management contract – following a tender process seemingly tailored for it as the incumbent. At the time, it was alleged that Regiments bid was arguably the most expensive out of 11 competitors, including large banks and specialist fund managers, who were disqualified.
“The City has now been alerted to the fact that Regiments Securities, acting as middle-man, arranged a private placement of R290 million from our sinking fund (managed by Regiments Capital) to Denel. Due to the manner in which Regiments committed this money to Denel, as a private placement, the City’s funds are essentially unsecured,” Mashaba stated.
The money was meant to mature on 10 June 2018, “however we have now been informed that Denel is unable to honour this payment due it its own financial issues.”
Mashaba said he is confident Public Enterprises Minister Pravin Gordhan, along with the new board of Denel, are doing everything possible to restore stability in the company. Whilst Denel stabilises, the City of Johannesburg will roll over the debt for a few months.