Letter suggests Denel CEO lied about Guptas

In an acrimonious court battle in which Denel stands accused of pulling strings at the behest of the Guptas, the state-owned arms manufacturer’s acting chief executive, Zwelakhe Ntshepe, has done his utmost to distance Denel from the controversial family.

But two confidential letters not only suggest the opposite, they seem to indicate that the Guptas and their partners are well positioned to benefit from Denel’s plans to inject itself in the Asian arms market.

The only person who stands in their way seems to be Finance Minister Pravin Gordhan.

The current battleground is the Oppenheimer family’s plans to establish a luxury international airport terminal in Johannesburg. The family alleged in court papers filed last year by their aviation company, Fireblade, that the Guptas were trying to use their influence over Denel to hijack their project.

Answering the Oppenheimers’ “vexatious and scandalous” accusations, Ntshepe denied under oath in February that Denel “has ever entered into a joint venture with an ‘Indian entity’ ”. He also said: “Denel denies that it has at any time been involved in the establishment of a business with the Gupta family.

Ntshepe added that the fingering of the Guptas is a “desperate attempt on the part of Fireblade to jump on the proverbial bandwagon of popular narratives”.

But the Mail & Guardian has seen a 13-page letter, dated March  9  2016, emanating from Denel’s management and marked “company confidential”. It refers in nine places to a “joint venture” between Denel Asia and their South African-based partners, as well as a proposed joint venture between Denel India and two proposed Indian partners.

News of Denel’s contentious establishment of Hong Kong-based Denel Asia in conjunction with the Gupta-linked company VR Laser Asia broke in late 2015. At the time, Gordhan described the joint venture as illegal, saying Denel did not apply to the treasury for approval in terms of the Public Finance Management Act.

It was Denel’s group treasurer, Marius Potgieter, who wrote the March 9 2016 letter that 11 months later would contradict Ntshepe’s affidavit before the court.

Potgieter’s letter is addressed to Absa bank’s exchange control division, asking for approval to establish Denel Asia (already registered in Hong Kong) and to initiate a new venture named Denel India.

This is the first public indication of Denel’s plans to establish the Indian subsidiary.

The M&G could find no evidence that Denel India has been set up.

The treasury denied receiving a formal application for the new venture. Denel Asia has been dormant since its inception because Gordhan refused to grant permission for it to do business, saying the Denel board is “arrogant and belligerent”.

Company information shows that Denel holds 51% shareholding in Denel Asia and VR Laser Asia holds 49%. Alleged Gupta lieutenant Salim Essa set up VR Laser Asia in Hong Kong in 2014. He is the sole shareholder.

In the second confidential letter the M&G has seen, dated July 18 2016 and addressed to the Reserve Bank, Essa confirms that the company “is and has remained dormant to date”. VR Laser Asia has no company infrastructure or resources and no operational experience.

Potgieter’s letter also torpedoes the strenuous denials from Denel, Essa and the Guptas about co-operation between the local and Asian VR Laser entities.

The Gupta link to the local VR Laser Services, of which Essa is also a director, is even clearer. VR Laser Services is 64.9% owned by Essa and partially owned by Westdawn Investments, whose majority shareholders are Rajesh Gupta and President Jacob Zuma’s son, Duduzane Zuma.

Essa’s co-director is Pushpaveni Govender, who shares directorships in other Gupta companies, including the Optimum Coal Mine, Sahara Computers and Sahara Holdings.

Ajay Gupta’s son, Kamal Kant Singhala, has also been a director of the local VR Laser Services. He resigned as director in early 2016 after news broke of the Guptas’ ties to the VR Laser companies.

The holding company for the Gupta family’s South African business interests, Oakbay Investments, still lists VR Laser Services on its website.

From Potgieter’s letter it is clear that VR Laser Asia will rely on the local VR Laser Services for “technical skills … as well as operational funding”.

VR Laser Services will further “contract, manufacture and produce for Denel Asia … VR Laser Asia via VR Laser [Services] has committed R100-million in terms of a shareholder loan on an arms-length basis,” Potgieter wrote.

The only skill VR Laser Asia seems to bring to the negotiation table is its alleged knowledge of the Asian arms market. Said Potgieter: “Denel Asia will pursue opportunities in Asia and specifically in India using the network of VR Asia.”

If Gordhan were to give Denel the green light to operate Denel Asia legally, the Guptas and their business partners would bag millions of rands by selling arms to the booming Asian market.

According to Potgieter, the plan was for Denel Asia to enter “into various joint venture companies”, and the first would be established in the Indian market by “partnering with a local industry partner”.

Indian law requires a local majority shareholding, meaning that Denel Asia would be able to negotiate a 49% shareholding with its Indian partner.

Denel South Africa would share in about 25% of the proceeds of any deal, whereas the Guptas’ VR Laser Asia would be entitled to about 24%, according to the letter.

Denel did not respond to a request for comment.

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