Nedbank state capture feeding frenzy to continue to 2030 if interest rate swops are not set aside, say Transnet and SIU
To date Nedbank is reaping billions of rand in profit from an interest rate swop deal signed with Transnet dating back to the state capture-era in 2015/2016 as the banking giant braces for a protracted legal battle with the state logistics parastatal and the Special Investigating Unit (SIU) over their intention to sue the banking group in a bid to recover R2.7 billion.
Business Report has in its possession court papers that provide a deeper insight into what is at stake:
Transnet has said it has as of May this year paid Nedbank more than R10.5bn in the controversial interest credit swops, with the amount set to continue unless the arrangement the utility said, it was craftily herded into by state capture luminaries is set aside, and it be refunded the difference in interest gains it would have made otherwise.
In particulars of a claim filed before the Johannesburg High Court, Transnet and the SIU revealed that Nedbank officials in 2015 and 2016 systematically culled Transnet, aside from a R12bn dominated club loan agreement and coerced into a series of variations to the initial 2009 International Swops and Derivatives Association (ISDA) Master Agreement.
This includes a 2015 Fund Mirror Swops which the parties said were peculiar and they have no commercial rationale in that the fixed rate payable by Nedbank to the fund exceeded the prevailing fair value market rate of 11.20%. As a result of the 2015 swops, and the 2015 Fund Mirror Swops, Nedbank paid the bulk of the funds that it received from Transnet under the 2015 swops to the fund.
Transnet said it was locked into a Nedbank club loan facility agreement that mandates it to inform the bank if it intended to hedge its interest rate in respect of portions of the club loan which affords Nedbank a preferential right to match any rates and terms quoted by any financial institution, and compels Transnet to enter into any interest rate hedge transaction with Nedbank should Nedbank match the rates and terms quoted by any financial institution.
“The club loan facility agreements concluded with Absa Bank; Old Mutual’s Specialised Finance; Futuregrowth; and the Bank of China did not contain a similar clause or afford those lenders the right afforded to Nedbank in clause 40 of its club loan facility agreement,” the parties stated.
The parties said according to a schedule of payment by Transnet to Nedbank over the period December 2015 to May 31, 2024 Nedbank profited more than R2.7bn as a result of the swops and that the profit realised by Nedbank is the difference between R10.5bn which Transnet has paid to Nedbank in consequence of the fixed interest rate payable under the swops; and R7.8bn, which Transnet would have paid in consequence of the variable interest rate payable under the club loan.
In light of the prevailing market conditions, it is projected that the fixed rate payable by Transnet under the swops will likely exceed the variable Johannesburg Interbank Average Rate (Jibar) linked rate payable by Nedbank until the term date of the swops in 2030.
“Accordingly, Transnet is likely to suffer a loss each month until the swops come to an end, and Nedbank realises a gain each month until the swops come to an end,” the parties said in their papers.
In explaining the delay in the institution of the claim, the SIU said the realisation of Nedbank’s role in this aspect of state capture was delayed by the shutdown around the Covid-19 period and the flurry of ensuing investigations into state procurement which according to data received from National Treasury indicates that about R30.7bn was spent by state institutions between April and November, 2020 of which approximately R13.3bn was subject to the SIU personal protective equipment investigation.
According to the court papers, Transnet in 2014 sought to buy the infamous 1 064 rail locomotives from the successful bidders at an initial cost of R38bn which was artificially inflated to R54.5bn, principally as a result of the involvement of Regiments Capital.
Transnet obtained a dollar denominated loan from the China Development Bank (CBD) and the about R12bn club loan, which comprises a number of rand-denominated facilities from the syndicate of lenders.
The club loans were for a total of R12bn each with a 15-year term, maturing in December, 2030. The interest rate payable by Transnet under the club loan over the period was variable at three-month Jibar plus 260 basis points (bps) on the Absa facility, and 270 bps under the other four facilities.
The parties said within two weeks of signature of the club loan, then Transnet’s head of treasury Phetolo Ramosebudi in alleged collusion with Nedbank’s head of balance sheet management Moss Brickman forced the variable interest rate payable under the club loan to be swopped for a fixed rate, which directly contradicted the advice given by Transnet’s treasury department at the time.
It is alleged the change in interest rate was effected through two tranches of interest rate swop agreements between Transnet and Nedbank during December, 2015 and March, 2016 respectively, with the swops negotiated on behalf of Transnet by Regiments Capital to the exclusion of Transnet’s treasury department – which was and would ordinarily have been responsible for the negotiation of such agreements.
They said the exclusion of Transnet’s treasury department, and the interposition of Regiments Capital in its place was deliberate and prejudicial to Transnet, as a corrupt relationship existed between Ramosebudi and the Regiments Companies and/or Eric Wood, a key Gupta-linked role-player.
The parties said the relief sought was premised on the swops having been a feature of the (now well-known) State Capture Project – part of a scheme of theft and money laundering designed to misappropriate money from Transnet; and for the benefit of proponents of the State Capture Project thereafter.
“Nedbank has directly or indirectly profited, and continues to profit excessively from the soaps. Nedbank entered into the swops in the pursuit of those profits, despite knowing or alternatively it ought reasonably to have known that the swops were not commercially rational and/or viable, and not in pursuit of legitimate business to the detriment of Transnet (while) plagued by several suspicious features, and the unnecessary involvement of the Regiments and Trillian Companies,” the court papers say.
Some of the Transnet officials cited include Siyabonga Gama who held the position of the group CEO of Transnet Freight Rail from April, 2006 to October, 2016; Brian Molefe who was Transnet’s group CEO from February 21, 2011 to October 1, 2015; and Anoj Singh who was Transnet’s group chief financial officer from 2012 to October 1, 2015.
Transnet recovering some funds
In response to Business Report’s questions, Transnet said it had to date recovered slightly more than R1bn from state capture losses and ensured that any monies recouped are deployed to set off debt and support revenue-generating activities.
Queried on the cost versus benefit of expenditure on the state capture transactions, Transnet national spokesperson Ayanda Shezi said Transnet had a statutory duty to set aside contracts associated with fraud, corruption or irregularity, and that the legal costs are tightly managed.
“Transnet has pursued a holistic approach to address the legacy of state capture. It has systematically litigated to recover losses suffered,” Shezi said.
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