Transnet this week cancelled the sale of R4-billion’s worth of MTN shares, to a consortium led by former Denel boss Sandile Zungu, over concerns about the governance climate in which the deal was reached and the steeply discounted price.
Zungu told the Mail & Guardian he was about to launch legal action. “We had a deal, the government can’t hold us responsible for their inefficiences,” he said.
In one of Jeff Radebe’s last acts as minister of public enterprises, in April last year, he announced the sale by Transnet and one of its pension funds of what was then a R2,5-billion stake in MTN to Zungu’s Umthunzi consortium.
Nearly 18 months later, a new front in the war of attrition over Radebe’s legacy at Transnet has opened. The shares are now worth close to R4-billion, and Ramos’s new team — together with trustees of Transnet’s second defined benefit pension fund — have called off the sale, citing an inability to agree “mutually beneficial terms” with Umthunzi.
No further explanation was forthcoming, partly because of possible legal action, partly because wrangling over the MTN shares has its roots in Cabinet tensions that saw Radebe demoted to the transport portfolio and replaced at public enterprises by Alec Erwin.
Government officials familiar with the transaction suggested Ramos and the fund’s trustees baulked at handing Zungu a discount worth hundreds of millions of rands at the expense of taxpayers. The precise scale of the discount has never been publicised, but it is understood to have been substantial — perhaps as much as 15% or R500-million.
Transnet’s “second defined benefit fund” owns the bulk of the MTN shares. When the Umthunzi deal was announced, the fund was R5-billion in actuarial deficit, meaning it did not have sufficient assets to fund its probable future pension liabilities.
The latest figures put the deficit at R4,8-billion, which Transnet says is fully provided for.
Announcing the deal, Radebe said selling the MTN shares would help resolve the fund’s problems. But, as Transnet officials now stress, it would not have improved the balance sheet, as it simply swapped one asset class, shares, for another —cash.
The deficit may have grown, because the deal involved selling the shares at a discount to their market value, with the difference being made up by Transnet or the government.
None of the bids for the shares came close to meeting the trustees’ requirements, insiders suggest, but the previous Transnet management and Radebe were keen to push the deal through.
The new Transnet board was also worried about governance issues. The company’s financial director at the time it was announced was Sindi Mabaso, a business associate of Zungu’s and, although she recused herself from deliberations on the sale and signed an affidavit saying she did not stand to benefit, the relationship raised eyebrows.
Three years ago the Treasury, led at the time by Ramos, was beginning to send up warning balloons over risky hedging strategies at South African Airways (SAA), mismanagement and corruption at its parent company, Transnet, and mounting losses throughout the public sector.
Among the concerns was the quality of advice that Transnet was receiving about the structure of its pension funds and financial management generally.
This sparked a bruising series of exchanges between Minister of Finance Trevor Manuel andRadebe, which culminated in a dispute over SAA’s hedging strategy and increasing evidence of profligacy and malÂadministration at the major parastals.
Evidence of the tension began to emerge when Ramos took over at Transnet and Erwin sacked its entire board. Some of the executives and board members ousted in the clean-up argued that Ramos, in her role as Treasury director-general when the hedging deals were concluded, should take responsibility for approving them.
On the contrary, Manuel, acting on warnings from Ramos’s treasury staff, had written to Radebe, raising concerns about the airline’s plans to bet massively against the rand, asking for more information, and suggesting that the strategy be discussed in Cabinet.
As the rand strengthened in 2004, SAA racked up losses of close to R10-billion. Those losses, and rising concern in the presidency over the possibility that problems at Transnet would hurt plans to ramp up investment in economic infrastructure, ultimately led to Radebe’s ouster. An official in the know, but not associaÂted with either camp, said: “Alec was sent in to clean up Jeff’s mess.”
Ramos is said to have firm presidential backing, but with a series of fresh conflicts looming over the MTN deal, the separation of SAA from Transnet and plans to cut head office costs, she has some complicated political terrain to negotiate.