The shareholders of LMT Holdings have accused Denel of diverting a major contract for the Badger infantry fighting vehicle to VR Laser at the behest of the Gupta family.
An application by the shareholders was filed in the Pretoria High Court yesterday, reports Times Live. The briefing documents state that after Denel acquired a 51% controlling stake in LMT Holdings in 2012, with 29% belonging to Pamodzi Investment Holdings and 20% to LMT founders, “LMT Holdings would be awarded the design and manufacturing contracts for the Hoefyster project, which would generate an estimated income of approximately R100-million a year for a period of 10 years and, moreover, that [Denel] would fund all the operations requirements of [LMT] to enable the latter to grow and have the financial resources and capacity necessary to supply its customers,” according to former CEO Dr Stefan Nell.
LMT was to contribute its experience with flat mine-resistant floors to the Badger programme, which will see 242 vehicles delivered by Denel Land Systems to the South African Army. Denel Land Systems plans to complete deliveries in the 2020s. Industrialisation of the project is currently underway.
However, Nell said in court documents that Denel “awarded the remaining Hoefyster contracts, previously promised to the company, 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”.
“It has become patently clear that [Denel] has not only reneged on its promises, electing instead to further the interests of a politically connected family in the Guptas, but that it may have also misrepresented its intentions not only to [the shareholders] but also various government departments. In doing so it has acted to the prejudice of itself, and the public funds entrusted to it by the South African government,” Nell said in an affidavit.
Nell was recently removed as CEO of LMT, something he said 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.
Now Nell is asking the court for urgent business rescue so the company can continue to operate.
Denel spokesperson Pam Malinda told defenceWeb that a statement on the matter would be issued by the end of the day but could say no more than that.
Dr Nell could not be reached for comment at the time of publication.
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. Vehicles with this technology are generally lower and more spacious than vehicles with a conventional V-hull design and have a smaller profile.
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. LMT’s protected cabs are manufactured for Mercedes Benz in Germany and used by at least three NATO countries in areas such as Afghanistan. The company recently supplied more than 130 armoured cabs to Mercedes Benz.
For the 2014/15 financial year, LMT earned revenues of R231 million, up from R110 million the year before. Earnings before interest and taxation (EBIT) amounted to R13 million, up 225% from R4 million the year before and R6 million in 2013. Export revenues rose dramatically from R60 to 205 million, while employee numbers also rose from 135 to 285 for the 2015 financial year, according to the 2015 Denel annual report.
LMT’s court application comes after the suspension last year of Denel Group chief executive Riaz Saloojee, who will not be returning to Denel, chief financial officer Fikile Mhlontlo and group company secretary Elizabeth Africa, who were suspended by the new Denel board.
Natasha Mazzone, the opposition Democratic Alliance (DA) party shadow public enterprises minister, maintains the dismissal of Saloojee is “suspicious and lends credence to the notion that he refused to broker arms deals with the politically connected Gupta family”. Mazzone said it was “widely speculated” the suspension of the three related to the creation of a new company – Denel Asia – and its link to the Guptas via VR Laser.
In January Denel announced it was creating Denel Asia, a joint venture company in Hong Kong in partnership with VR Laser, which is partially controlled by the Gupta family. Allegations subsequently emerged that Saloojee was removed to make way for joint venture.
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 component making up R400 million of this.
Brown was expected to have a report into the investigation into the suspension of Saloojee, Mhlontlo and Africa to be completed by the end of June, more than six months later than planned. So far no word on the progress of the report has emerged.