STUART GRAHAM, Johannesburg | Tuesday
THE SA Reserve Bank has accused Deutsche Bank of discrepancies in the bank’s application to conduct an offshore deal with three top South African companies.
Assistant general manager in the SARB’s Foreign Exchange Department, Christiaan Grove, told the Johannesburg-based commission investigating the rand’s fall in 2001 that the discrepancies arose in corporate asset swaps arranged by Deutsche Bank Johannesburg (DBJ) for chemical producer Sasol, packaging group Nampak and mobile phone operator M-Cell.
”Exchange Control (EC) was not approached for approval of any deviation from the original authority which EC granted in response to the Sasol transaction and the facts of any other subsequent or related transactions were not made available timeously,” Grove said on Monday.
”Exchange Control is required to be in possession of sufficient information regarding any transaction or a series of transactions, its nature and purpose, in order to consider granting approval for the implementation of such transactions.”
Grove said the original Sasol application for a share placement transaction did not disclose all the related or subsequent transactions, which were or were to be implemented.
He said a letter with Exchange Control’s concerns about the discrepancies was given to representatives of DBJ and Deutsche Securities on March 26.
The letter called on DBJ and Sasol to explain and make representations within 14 days on the following issues:
– the facts relevant to each transaction which was entered into in connection with the Sasol application and the approval granted by EC pursuant thereto, together with the cash flow implications resulting from the implementation of all those transactions.
– whether EC’s perception of the discrepancies was accurate. — and why, if the transactions were implemented in connection with the Sasol authority, EC should not impose remedial measures in terms of Exchange Control Regulations.
Grove said EC had received a full response from DBJ and Sasol and would make a decision on what further action was required.
Deutsche Bank said last week that none of the deals contributed to the rand’s 37% slide in 2001.
The discrepancies in the asset swaps, which Deutsche elaborated on in two letters to the SARB in February 2002, included deals which the bank carried out to hedge its exposure to the rand and the South African shares it held.
This involved the exchange of rand for foreign currency offshore and repurchase sales of South African bonds in the Sasol swap and the UK20-million Nampak deal.
M-Cell’s UK20-million asset swap involved Deutsche Bank hedging its share market risk by entering into put and call contracts on the South African Futures Exchange. Deutsche Bank maintain that they did not require specific SARB approval. The SARB requires that asset swap deals be reserves neutral. Deutsche Bank has told the inquiry that the term was not clearly explained to financial markets. Grove was unable to provide a formal description of ”reserves neutrality” when asked by Deutsche Bank’s legal counsel to do so. He told the inquiry that all three deals arranged by Deutsche Bank breached its obligation to ensure reserves neutrality — which he said meant South Africa’s total foreign exchange reserves, not just those held by the SARB. Monday’s proceedings were opened by retired deputy Reserve Bank governor James Cross who said that he had received information that certain transactions could be in contravention of exchange control regulations. Cross told the commission he received a phone call in October last year from a person who said, according to information received ”by their bank”, that some South African companies financed offshore acquisitions by using the domestic balance sheets of a ”certain company”, which would normally have been in contravention of exchange control regulations. SA Chamber of Business chief executive officer Kevin Wakeford told the commission last week that he had been given information from a reliable source that ”there was a likelihood” that Deutsche Bank ”might”, in a asset swap deal with chemical producer Sasol, have used ”unethical but not necessarily illegal means” to manipulate the currency. Wakeford said it was rumoured that packing group Nampak and M-Cell were conducting similar deals with Deutsche Bank that could have also contributed to the rand’s fall last year. He refused to name his source, but said the information about the Sasol deal was passed to the SARB in October last year. According to media reports there were strong rumours in the markets that Cross gave Wakeford information which was then passed on to President Thabo Mbeki. However, Cross, who retired on December 31 last year due to health reason, emphatically denied that was the source of Wakeford’s information. Wakeford wrote a letter containing the allegations to Mbeki on January 8 this year after, he said, the SARB apparently did respond to the source’s information. In his letter Wakeford said Deutsche Bank had strong links with SARB and the Department of Finance. Mbeki set up the R25-million inquiry, headed by Advocate John Myburgh, after he received information from various sources that the currency could have been manipulated. Last week all the companies provided evidence to the commission, denying the allegations. The currency was trading around R11,15 to the US dollar on Monday morning after reaching a record low of R13,87 to the dollar in late December last year. – Sapa