Denel 'sets the record straight' following media reports

Ajay and Atul Gupta. (Muntu Vilakazi/Gallo/City Press)

Ajay and Atul Gupta. (Muntu Vilakazi/Gallo/City Press)

State-owned armaments manufacturer Denel on Saturday moved to “set the record straight” on a number of issues in the news recently.

Over the past months, Denel and its board and senior executives had been “under tremendous media attack and scrutiny”, the board said in a statement.

Read more: Denel-Gupta deal ‘makes no sense’

Since September 2015, Denel had been inundated with media queries and questions “which makes it difficult for the board and management to focus on their core responsibilities to manage the affairs of the company”.

“Therefore, in order to protect the integrity and reputation of both the board and the company it is important to clarify some aspects relating to business transactions considered by the board since its appointment in July 2015.”

On the issue of suspended employees, the board said following a resolution at its meeting on September 25 last year, three executives – the former group CEO, CFO, and the company secretary – had been suspended.

“The decision to suspend these executives was taken to allow for the unfettered investigation to address concerns that the board had raised regarding Denel’s acquisition of BAE Land Systems South Africa (LSSA).

“What is distinct about this transaction from others, are the facts that transpired subsequent to the granting of board and shareholder approval. The preliminary assessment conducted by the board during implementation of the transaction highlighted serious areas that required detailed investigation.”

The board had previously refrained from commenting in detail on the matter, given the nature of the disciplinary process. However, given the degree of “misrepresentation and misreporting over the past few days”, various points now needed to be made.

The assessment undertaken by the board was a normal process required in the ordinary monitoring of transactions as part of its oversight and fiduciary duties. This was not aimed at purging any of the executives or employees of the company but to gain a clearer understanding of the transaction from the executive who was part of the decision-making process then and privy to the rationale presented to the former board.

It was unfortunate that what was intended to be an internal company matter became a subject of media and public speculation – casting serious aspersions on the board’s motive.

“At the core of the allegations against these officials is the fact that the funding model that was approved for the BAE LSSA transaction was not implemented in that form, and BAE LSSA’s liquidity was misrepresented.

“The CEO’s contractual obligation to Denel was terminated as his contract was about to expire, and Denel is proceeding with disciplinary action against the other two officials,” the statement said.

On Denel Asia, the board said this was not the first transaction of this scale and magnitude that the company embarked upon. There were many others in the past and certainly, there would still be more in the future.

However, the keen interest shown by the media and the public in this transaction had created a perception that there was huge controversy, malice, and something shoddy with the manner in which the transaction was structured.

Denel had established many cross-border companies and concluded partnerships with foreign entities before.

“In actual fact, the success of the current turnaround strategy was premised on the formation of associate companies with international companies such as Turbomeca, Airbus Optronics, and Rheinmetall, among others.”

This strategy was adopted by previous Denel boards and had been implemented since 2005. These partnerships contributed to the successful business turnaround and sustainability of the company, evidenced by an order book of more than R20 billion.

The Denel Asia transaction was considered in furtherance of this strategy and the process to form the joint venture commenced before the current board came to office. In the past, Denel suffered serious business and reputation damage as a result of its marketing strategy which allowed for appointment of “agents” in foreign jurisdictions. The decision to consider joint ventures was also to minimise the business risks associated with “agents” in some of the countries identified for business expansion.

Denel Asia was composed of VR Laser Asia and Denel. VR Laser Asia had direct relations with VR Laser South Africa and had been doing business with Denel for more than a decade prior to the current board coming into office.

“It is therefore incorrect to state that this board ‘brought the Gupta family into Denel’ particularly as the Gupta family has no business interest in VR Laser Asia,” the statement said.

VR Laser South Africa’s work at Denel included the steel cutting and fabrication contract on the Hoefyster Project, which was awarded before this board took office.

The total value of the Hoefyster Project was R12.7 billion, with VR Laser’s steel fabrication and cutting component making up R400 million of this. It was therefore incorrect to state that the Gupta family stood to benefit to the tune of more than R10 billion from this contract, as some media reports had suggested.

“It must be stated that there is nothing wrong with doing business with any registered, legally-trading business in South Africa, whether the Gupta family or any other.”

The board said Denel executives were in ongoing contact with National Treasury clarifying Denel’s legal compliance in establishing Denel Asia. No further comment would be made on this matter until such discussions with Treasury were concluded.

“We have been assured that through our shareholder department DPE [public enterprises] we will engage with Treasury to clarify our full compliance with the PFMA [Public Finance Management Act].”

The board would continue to engage all affected stakeholders, in particular, the minister of public enterprises, to ensure continuing oversight and support to the company and its leadership.

“As the board, we are totally committed to ensuring that Denel is managed with good governance and sound business practices,” it said. – African News Agency (ANA)



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