Waiting game: The Reserve Bank is in no hurry to push through Vardospan’s application.
In its final act with Pravin Gordhan at the wheel, the treasury succeeded on Friday in quashing a bid to force it to make an urgent decision about whether a Gupta ally may acquire a bank.
On Monday this week, Vardospan Limited applied to the high court to force the Reserve Bank, the registrar of banks and the now-axed Gordhan, to decide as a matter of urgency whether the company can own and run the Habib Overseas Bank.
Vardospan is connected to the Guptas — the family ally and businessperson Salim Essa is its largest shareholder.
Vardospan said in its papers the Reserve Bank and the treasury have been dragging out the process of clearing its purchase of the Habib Overseas Bank. Despite the inadequate time in which the respondents had to reply, the Reserve Bank and treasury submitted answering affidavits on Thursday and on Friday, arguing the matter was not urgent.
On Friday, the high court agreed and stuck it off the roll.
In a statement by Vardospan director Hamza Farooqui on Wednesday, he said the company had no choice but to go to court and implied the finance minister was behind the delay.
“It is plain to see that a transformational deal for black South Africans is being stalled by the finance minister. What is his motive? Is he just protecting his friends and colleagues in South Africa’s major banks, in which he owns shares?” he asked.
Vardospan concluded a share purchase deal to become the majority shareholder of the Habib Overseas Bank in August last year. The bank’s headquarters are in Gauteng. It has five branches, three in Gauteng, one in Durban and another in Cape Town.
The deal was struck a few months after all major banks closed the accounts of the Gupta family and their related companies. The family empire has apparently been using the Mumbai-based Baroda Bank but, at the beginning of March, there were reports that it would also start to close their accounts.
The family has dismissed this as fake news and has challenged those who said so to provide proof.
But it’s evident the family’s options are limited, if not running out altogether.
In the court papers, Farooqui said Vardospan is owned by two shareholders: CINQ Holdings and Pearl Capital Holdings. Farooqui owns 100% of the issued share capital of Pearl Capital, which has a 33.33% stake in Vardospan, and CINQ is wholly owned by Essa, which holds the other 66.67%.
Farooqui has repeatedly denied that the Guptas are linked to the purchase but Essa’s extremely close business ties with the family have raised suspicions.
Vardospan said it missed a January 31 deadline to have received the approvals, as stipulated in the sale agreement, or the deal would fall through. But it said it negotiated a final extension until Friday March 31.
Vardospan contended the Reserve Bank, the registrar of banks and the finance minister could scupper the deal because they failed to decide on Vardospan’s applications.
On Monday, President Jacob Zuma issued a short statement to say he had “recalled” Gordhan from the investor roadshow. No explanation was provided but the markets immediately slid amid speculation that Gordhan would be fired.
The death of ANC stalwart Ahmed Kathrada might have been a parting gift to Gordhan — it made Zuma’s decision decidedly more difficult. Embarrassingly, he was asked by Kathrada’s family not to attend the funeral on Wednesday and almost every mention of Gordhan by speakers at the event provoked thunderous applause.
On Thursday evening it was announced that Gordhan and his deputy, Mcebisi Jonas, had been axed.
The Vardospan affidavit said, in line with the Banks Act, it is up to the Reserve Bank and/or the registrar of banks to grant permission for it to be registered as the controlling company of the Habib Overseas Bank.
Also in line with the Act, they and/or the minister of finance need to grant permission for the majority of the issued share capital of the bank to be acquired.
Vardospan said it had learnt through the media — specifically, a Bloomberg story citing anonymous sources — that it had been recommended that its bid be refused because of alleged noncompliance with the Income Tax Act.
But the Reserve Bank had said Vardospan’s applications were still being considered.
Treasury director general Lungisa Fuzile said, if the finance minister was forced to make a decision on March 31, he would not be in a position to approve the application because of the outstanding information relating to the financial strength of Vardospan to support the Habib Overseas Bank, or the “fit and proper status” of the senior executives Vardospan proposes to manage the bank.
The information provided by Vardospan about the financial strength of its main shareholder, Essa, depends primarily on his shareholding in Tegeta Exploration and Resources, Trillian Capital Partners and VR Laser services.
“Without satisfying himself that there are no grounds for suspicion of Mr Essa or the three companies flowing from the report of the public protector, the minister cannot approve the applicant’s application,” he said.
Meanwhile, in the other case being heard in the high court this week, Gordhan had requested a declaratory order to determine whether the minister of finance can interfere in the relations between banks and their clients. The clients in question, the Gupta family, are not opposing the matter. But the case did allow new information to be aired.
The registrar of banks, Kuben Naidoo, in an affidavit submitted in answer to the finance minister’s request for a declaratory order, expressed his concerns about the delay in passing the Financial Intelligence Centre Amendment (Fica) Bill, although it seemingly had little to do with the issue.
By kicking the Fica Bill back to Parliament, Zuma has delayed the implementation of tighter regulations and added requirements by banks about politically exposed persons.
But current Fica legislation already appears to have caused the Gupta family and its businesses serious problems. It obliges accountable institutions to report suspicious or unusual transactions to the Financial Intelligence Centre. This is what led to the banks reporting 72 suspicious and unusual transactions.
The list of these appears in the annexures to Gordhan’s declaratory order application. It shows that, of the 72 reported transactions, 58 took place last year, with the last one being a transaction by Oakbay Investments on June 3 2016.
The court did not allow the transactions to be part of the case. In a statement, Oakbay said the finance minister had ulterior motives.
“He has used an irrelevant and fundamentally flawed list of transactions to further his warfare against Oakbay and its shareholders … The reason he [Gordhan] is using Oakbay as a pawn for his own political purposes is a mystery to us.” — Additional reporting by Lynley Donnelly
Urgency is self-created, says Reserve Bank
The South African Reserve Bank and the registrar of banks slammed Vardospan’s urgent court application, describing the supposed urgency as “self-created”.
In its answering affidavit at the high court in Pretoria on Wednesday, the central bank and registrar contended that the deadline of March 31 — by which Vardospan wanted to have the approvals required from the finance minister and the Reserve Bank — was a condition set between private parties that “can never inform the processes that must be followed by the central bank respondents when carefully and meticulously considering the Banks Act application”.
It would defeat the purpose of sections 37 and 43 of the Banks Act to act in the interest of justice and protect the public interest.
The affidavit said neither Vardospan nor the seller made an effort to find out how long the process takes. If they had, they would have been advised that the Banks Act makes no provision for the time within which an application must be considered, and there is no precedent for the processing of such applications as each case must be considered on its own merits.
The central bank and registrar said they could not be “strong-armed” into making a decision. The Reserve Bank and the registrar said it could not make a determination on the section 43 application (for permission to be registered a “controlling company”) until the finance minister had decided on the section 37 application (for permission to acquire the majority of the issued share capital) as the one was dependent on the other.
The applicants failed to provide information on sources of funding, or evidence of the financial strength of the proposed shareholders. The report by the independent auditors mentioned only Salim Essa.
“No mention was made of the availability and source of funds of the other key shareholder, namely Mr Hamza Farooqui.”
The Reserve Bank and the registrar contended evidence supporting the financial strength of the proposed shareholders of Vardospan was not provided.
“In addition, the latest audited financial statements of [wholly or partly owned Essa companies] Tegeta Resources, Trillion Capital Partner and VR Laser Services, had not been provided.”
The two argued the deadline agreed between Vardospan and the seller had been extended before, so could be extended again. And even if the requested information was provided, it was not possible for it to be considered and for a responsible decision to be taken in 24 hours, the affidavit said.