STUART GRAHAM, Johannesburg | Tuesday
SA Chamber of Commerce chief executive Kevin Wakeford has refused to name a source who gave him information that dubious means could have been used to manipulate the rand.
Wakeford, testifying in Johannesburg on Tuesday at the commission of inquiry into the rapid depreciation of the rand in 2001, said ”a credible source” had ”orally” informed him that certain transactions and the use of certain mechanisms could have contributed to the fall of the currency.
”My source gave me certain examples in this regard and stated that these transactions and mechanisms had been reported to the SA Reserve Bank, but the Reserve Bank had, for whatever reason, taken no action,” Wakeford said.
”My source also indicated that rumours of such transactions were circulating in the market place at the time.”
He said given the credibility of his source, he felt the matter needed urgent investigation.
Wakeford then approached President Thabo Mbeki’s office with his information.
On Tuesday January 8, Mbeki’s representative requested Wakeford’s information.
”The President’s spokesman indicated to the press on the same day that the Presidency had received information from a number of sources relating to the rand’s rapid depreciation.”
He said his information could only therefore be a contributing factor to Mbeki’s final decision to establish a commission of inquiry.
”Even if I had not been given this information I would still have called for an inquiry into the rand’s depreciation,” he said.
The currency lost 37% of its value in 2001, reaching record lows against most of the major currencies. Late in December it reached R13,87 to the US dollar.
Wakeford said his source had informed him of two examples of mechanisms that had been used to undermine the currency. The first was a deal between chemical producer Sasol and Deutsche Bank, where Sasol would buy German chemical company Condea.
The second was a mechanism called ”round tripping,” where a company was motivated by a desire to benefit from an increase in the value of shares in certain South African companies due to the depreciation of the rand.
According to the source neither of the transactions or mechanisms were necessary illegal, but could have a devastating effect on the rand and were considered dubious and unethical.
In terms of the Sasol-Deutsche Bank deal, Sasol announced that it had, with the assistance of Deutsche Bank, introduced a ”structures product” that had the effect of domestically funding approximately 40 percent of the original value of the Condea acquisition.
According to Wakeford’s source, Deutsche Bank then obtained SARB approval to issue R6-billion in new shares and sell them offshore to Deutsche Bank in the United Kingdom.
”The proceeds from the new issue of Sasol shares assisted Sasol in funding the Condea acquisition by redeeming part of the foreign debt originally incurred in relation to the funding of the Condea acquisition.
”The Sasol shares held by Deutsche Bank UK were then sold back into the SA market, which caused an outflow of capital which negatively impacted on the rand.”
Wakeford said that before the sale of Sasol shares back into the South African market, Deutsche Bank UK was left over-exposed to the rand, because of its holdings of rand-denominated Sasol shares.
”This may have induced the sale of rands by Deutsche Bank UK which also contributed to the rand’s depreciation and so increased the value of South African resource-based shares.”
Wakeford said ”round tripping” happened when South African companies with strong balance sheets were able domestically to raise capital to buy local rand-hedged shares and then sell them to an offshore party.
”The offshore party sells these shares back into the South African market. An immediate outflow of foreign currency takes place, which, if the transaction is sufficiently large, brings pressure to bear on the rand because of the limited domestic supply of foreign currency and so results in the further depreciation of the rand.”
It was rumoured that the shares of a large number of companies, such as Nampak, M-Cell and Billiton, had been used in similar such transactions.
Wakeford also said it was interesting that the rand had stabilised since the establishment of the commission, ”even with the upheaval in Zimbabwe”.
Sasol and Deutsche Bank are to testify at the commission in the next few days. – Sapa