17 June 2024 | 09:44 AM

Transnet’s shady Gupta loan deal

Key Takeaways

Craig McKune, Stefaans Brümmer, Sam Sole
Picture: Salim Essa. (Delwyn Verasamy, M&G)

Transnet paid a whopping R93-million without a tender to a small asset management firm – shortly after an opaque company led by a Gupta family lieutenant bought into it.

The state rail company paid Trilian Asset Management to “arrange” a multi-billion rand loan needed to buy locomotives.

But the rationale for paying Trillian was as thin as the fee appears exorbitant, adding to the body of evidence that state-owned companies had been “captured” for profit by the Gupta family and associates. Gupta lieutenant Salim Essa is the sole director of the company that controls Trillian after it acquired 60% of the latter last year.

But the controlling company’s ownerhip remains opaque. Essa has not complied with an amaBhungane request to access its share register, even after the sheriff delivered demands two months ago. The Companies Act requires disclosure within 14 business days.

Red flags include:

  • The fee was for arranging a “club loan”, which insiders say Transnet’s own treasury could easily have arranged.
  • Internally, Transnet justified the tender-free award to Trillian on the ground that it was the “supplier development” partner of another company already contracted – which the other company, Regiments Capital, denies.
  • There is evidence that Regiments, not Trillian, did the work and was paid for it – meaning Transnet may have paid double.
  • The chair of Transnet’s board procurement committee introduced Essa to Trillian.

Tender beginnings

The story has its roots in a tender Transnet issued in 2012 for 1 064 new locomotives to modernise its fleet.

That same year the rail company appointed a consortium led by consultants McKinsey to advise on the deal structure and how to fund it. Regiments Capital was soon included in McKinsey’s consortium and allocated the fundraising part of the work.

Fast forward to 2014, when Transnet awarded the locomotive tender to four international suppliers; and mid-2015, by when it had raised over R30-billion in loans towards the R50-billion price tag. But Transnet needed more money.

At the time, Trillian Asset Management was a small firm of investment professionals owned by four men, including brothers Rowan and Ben Swartz.

Trillian worked with a second investment firm, whose principals included Stanley Shane. Shane in turn held two board appointments of note: at Transnet, where he chaired the procurement committee; and at a third investment firm, where his co-directors included Essa, the Gupta lieutenant. He was well placed to make the introductions that followed.

A source acquainted with the deal says that when the Swartz brothers indicated they wanted to sell their 50% share in Trillian, it was Shane who introduced the buyer: an obscure shelf company named Lipshell 103.

Trillian’s share register shows that the Swartz brothers’ shares were transferred to Lipshell on September 1, 2015. Company records indicate that Essa was registered as Lipshell’s sole director later that month, backdated to just before the acquisition.

Lipshell subsequently ramped up its stake to a controlling 60% of what became the Trillian group of companies, including the original Trillian Asset Management. It is Lipshell, now renamed Trillian Holdings, whose ownership Essa, still its only director, has failed to disclose.

“Club loan”

But back to Transnet’s need for more funding: On November 23 2015 – not even three months after Essa bought into Trillian – the state rail company announced it had signed a R12-billion “club loan” with Absa, Nedbank, Bank of China, Futuregrowth Asset Managers and Old Mutual Specialised Finance.

Club loans are simpler than syndicated loans. In the latter a “lead arranger” assumes the risk of placing parts of the debt with other lenders, and is rewarded accordingly. With club loans – and also in this case according to Transnet’s announcement – each lender contracts directly with the borrower.

Insiders told amaBhungane that Transnet’s own corporate treasury, one of the largest in the country, could easily have arranged the club itself.

Yet, Trillian invoiced Transnet R82-million – R93.5-million including VAT – and was paid in December 2015, the month after the loan was signed.

An internal memorandum from Phetolo Ramosebudi, Transnet’s treasurer, motivated paying Trillian as “Transnet’s originating and coordinating mandated lead arranger” for the club loan.

Explaining away the need for a competitive tender, it said: “Regiments Capital was appointed as the 1064 locomotive funding advisor and had supplier development obligations to Transnet on their contract.

“One of the SD [supplier development] requirements was the development of other black owned organisations in the industry. Trillian was the beneficiary of that initiative.”

” … absolutely nothing to do with Transnet … “

But there is a catch. Until three months before, when Essa’s company bought half of Trillian from the Swartz brothers, it was 100% white-owned and could not have qualified for supplier development.

The Swartzes confirmed in an email: “In our entire time of involvement in Trillian and prior to this date whether as shareholders or directors we had absolutely nothing to do with Transnet [or] Regiments.”

And after the Essa takeover? Regiments executive Niven Pillay texted: “To confirm Trillian was never a supplier development partner to Regiments.”

Transnet did not respond specifically to questions about this contradiction, but said in a statement: “Regiments … informed Transnet that it was in a process of restructuring its shareholding and that, as a result thereof, an integral part of the Regiments advisory business unit, assets, staff and certain contracts would be assigned ultimately to Trillian…

“Regiments also authorised Trillian to execute the work and services relating to the contract on its behalf.”

In short, Transnet held that Regiments, one of whose founding partners left to join Trillian, had ceded some of its Transnet work to Trillian as part of an internal split.

“Scope creep”

The Regiments founding partner and advisory unit left for Trillian on March 1 this year only – some three months after the club loan was signed. And it appears that Regiments did whatever “arranging” was done.

A banker involved in the club loan, who is not named as he was not authorised to speak to the press, said that Transnet had used Regiments, and not Trillian, as “consultant”.

And a trade finance publication, publishing details of the deal earlier this year, credited Regiments as Transnet’s “legal adviser” on the deal, without any mention of Trillian.

Regiments said in reply to questions that “we did the [fundraising] work that we were contracted to do and were duly paid”. Due to “scope creep”, it asked for an additional fee, which Transnet turned down. It was unaware that Transnet had paid Trillian until alerted by amaBhungane.

Trillian did not reply to specific questions, saying it felt they were “adequately covered” by Transnet’s response. Why Trillian was paid at all remains unclear.

The parallel case of SAA’s contentious but cancelled appointment of unknown BNP Capital to raise R15 billion at the even more exorbitant fee of R225-million, or 1.5% of the total loan, is instructive. BNP’s appointment was cancelled after SAA’s treasurer argued that the department could have arranged the loan itself. In court papers, the SAA treasurer cited hypothetical quotes from two local banks: one said 0.5%, and the other broke it down to 0.1% for arranging plus 0.25% to 0.4% for “participating”.

To participate means to be among the lenders oneself. But Trillian was not, meaning a bank might have provided Trillian’s supposed service for as little as 0.1% of the loan value. This would have translated to a R13.7-million fee inclusive of VAT – a fraction of the R93.5-million, or about 0.7% that Trillian got.

Essa and the Gupta family did not respond to detailed questions. Shane did not reply to questions via Transnet.

Transnet reply

Transnet said in its statement that any evidence of wrongdoing – of which it was confident there was none — should be reported and it would cooperate with a probe.

“Transnet is satisfied that the transaction advisory and execution support has delivered significant and measurable benefits to Transnet in terms of speed of business case approval and contract negotiation, transparency of processes, cash flow management, significant savings related to the cost of funding and mitigating financing cost risk.

“Further, in terms of these processes, all service providers in this transaction were paid for services rendered after we had satisfied ourselves that all obligations were fulfilled in terms of agreed contractual scope. We have sufficient checks and balances to ensure we derive value from all contracts.”

“Transnet assesses its need for specialised services on an ongoing basis and we award work to external parties based on these assessments, ensuring that there is no conflict of interest with Transnet employees.

“The grounds for utilising external service providers may range from level of expertise/skills required, to capacity to execute, etc. This is also enshrined within the Transnet procurement processes, which also prescribe the appropriate delegations or approval requirements…”

The amaBhungane Centre for Investigative Journalism produced this story. Like it? Be an amaB supporter and help us do more. Sign up for
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Before joining the amaBhungane team in 2017, Micah was the national coordinator for media freedom and diversity at the Right2Know Campaign. He holds a Masters in African Studies from Oxford University and a BA Honours in History from Wits University.

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