Johannesburg Mayor Herman Mashaba has called on Public Enterprises Minister Pravin Gordhan to ensure Denel pays back a R290 million loan from the City of Johannesburg after Denel made no budgetary provision for it.
“Today, I received concerning reports that Denel, within its midterm budget, has failed to budget for the repayment of R290 million loan owed to the City. The loan was to be repaid by the 10th of December 2018,” Mashaba said on Wednesday.
“This follows the lending of residents’ money to Denel, through Gupta linked Regiments Capital, via an unsecured loan made without the City’s knowledge and irrespective of the financial risk posed to residents’ money.
“In 2013 and 2014, Denel issued senior unsecured notes with a maturity date of 10 June 2018. Subsequent to the issuance of the notes, Regiments Capital, in their capacity as fund managers of the City’s sinking fund, purchased these notes to the value of R290 million for the fund.
“As part of the City’s investment structure, the City utilises a sinking fund to pay back inherited debts and investments made to the City, amounting to over R18 billion. Regiments was appointed to perform the fund management contract following a tender process allegedly tailored for it as the incumbent.
“On the 5th of June 2018, the Department of Public Enterprises (DPE) informed the City, in their capacity as the shareholder representative to Denel, that the institution was not in a position to settle the notes on the due date because of serious liquidity challenges. In approaching the City, DPE’s objective was to negotiate a rollover of the investment in order to prevent Denel from defaulting while Denel stabilised its financial and liquidity position.
“Following consultation with the DPE and Minister of Public Enterprises himself, Mr Pravin Gordhan, the City reached an agreement to roll over the repayment of the loan amount so as to prevent capital loss for the City, prevent Denel from defaulting while also giving the entity time to implement a business rescue strategy aimed at improving its liquidity and financial situation.
“The latest news received by the City on this loan is of great concern, particularly given the Minister’s commitment to ensuring that the loan is repaid by early December.
“The City of Johannesburg’s sinking fund is derived from the rates and taxes paid for by the residents of Johannesburg. It is their money. Any investment which undermines security of said finances ultimately harms our residents,” Mashaba said in a statement.
“Given this recent news, the Minister must urgently explain how Denel intends on meeting the agreed repayment deadline of 10 December 2018. The City Manager has already written to the Department of Public Enterprises in this regard and we expect a response by the end of this week.”
The Denel board approved the R290 million facility on 4 September 2012.
Last month Gordhan’s office stated that, “Based on historical records, there are no indications any breaches were committed in corporate governance rules or in Treasury’s public finance management regulations. Despite a decent and professional discussion in June this year, Mayor Mashaba saw it fit to attack the integrity and reasonable arrangements with the City of Johannesburg on two occasions”.
The City of Johannesburg matter is one of Denel’s many financial concerns following its R1.7 billion operating loss for the 2017/18 financial year. In addition to the loss, the Auditor General has not guaranteed that Denel’s financial statements are correct. The Auditor General found R500 million in irregular expenditure at the state owned arms conglomerate.