/ 9 March 2018

Gupta firms are viable but …

Business rescue pracitioners Kurt Knoop
Business rescue pracitioners Kurt Knoop

The business rescue practitioners of eight embattled Gupta-linked companies are desperately trying to drown out the noise and focus on the task at hand, but it’s proving near impossible to separate business from politics.

The companies are in good health with positive cash flows and some eager buyers prepared to offer top-dollar prices, the rescue practitioners say. But their troubles instead stem from banks’ unwillingness to offer them accounts, even though the businesses are no longer under the control of the criminally tainted Gupta family.

The rescue team must also work around penalties levied by Eskom, and a possible sale agreement of the Optimum coal mine with a suspected Gupta front company.

“Ninety-nine percent of [other] business rescue, people don’t know about. But here the whole country knows about it [the Gupta companies],” said Louis Klopper, a business rescue practitioner at Coronado Consulting. “Everything is just emotional and politically tainted.”

Klopper and his colleague, Kurt Knoop, have been tasked with rescuing the companies, including Optimum, VR Laser and others.

They thought they had secured critical transactional banking facilities on Monday. Without being able to transact, Gupta-affiliated companies, which employ a reported combined 7 000 people, will not survive.

Klopper said Standard Bank had said it would provide facilities now that the businesses and their finances were in the control of the practitioners and not the Guptas. But, when queried, the bank said the communication between the employee and the business rescue practitioner was not authorised and did not follow the bank’s internal processes. The decision not to provide banking facilities to the companies still stood and disciplinary procedures were under way.

So the race is still on to secure banking for the companies. Major banks stopped doing business with Gupta-affiliated companies in 2016 because of reputational risk over a great number of suspicious transactions, which were reported to the Financial Intelligence Centre.

The Gupta companies were able to make payments through the Bank of Baroda, which was assisted by Nedbank to conduct transactional banking.

Nedbank said it offered domestic clearing services to Baroda, as a longstanding client, and not to the Guptas. But Nedbank ended this arrangement in February. It gave Baroda three months’ notice. Baroda, in turn, announced its intention to withdraw from South Africa by March 31.

The directors of the operating companies realised they could not meet their obligations without a bank account and filed for business rescue.

Knoop said he had approached only two banks before receiving a positive response from Standard Bank.

“When it comes to a mine especially, which has a huge environment that turns over massive cash each month, well then you need a bank. That’s where the problem comes in,” Klopper said.

The managing director of the Banking Association of South Africa, Cas Coovadia, said banks could not be forced to do business with anyone and would make their own assessments. But, he said, it was important to note that “jobs are at risk because of the way the Guptas conducted themselves, not because of the banks”.

Besides the critical issue of banking, the business rescue practitioners believe the businesses can be saved.

“The operating companies [of which there are six under business rescue] have been deprived for a long time of their fair income,” said Klopper.

“That is what we have to do as practitioners is to protect each one so its product can be sold, and the income generated from that goes into that operation and does not subsidise to buy luxuries and properties and jets … If the correct amount of income comes to these companies, they are actually highly profitable.”

But if the rescue is successful, would the shareholders, including the Gupta brothers and Duduzani Zuma, who are on the run from the South African authorities, stand to benefit?

“This is a unique situation we find ourselves in,” said Knoop. “The Guptas will no longer be around and somebody related to them or involved in management can never ever run this business on their own. We are put in as the guardians now and the only way to deal with this and to keep the jobs is we are going to have to sell the business. And that’s what’s going to happen.”

After just a week in the job, the practitioners had been approached by several parties interested in the businesses. Klopper said he was “gobsmacked” by the kinds of offers made and that he and Knoop would soon begin interacting with them.

A deal said to be already in place for the sale is of the Optimum coal mine to Swiss-based Charles King for R2.9-billion, announced by the Guptas in August last year. But Charles King is opaque and is suspected by some of being a front for the Guptas.

“We are still trying to get to the bottom of that,” said Knoop. “We haven’t seen an actual contract but funds were paid.”

But Ayanda Shezi, the spokesperson for the department of mineral resources, said an application to transfer rights, under section 11 of the Mineral and Petroleum Resources Development Act, had not been lodged with the department.

Once the companies have been sold, the proceeds would be distributed to all affected parties and “if there’s a cent left, the owners get that. Otherwise, zippo,” Klopper said.

But, Knoop as pointed out: “I think the Asset Forfeiture Unit is going to come talk to us.”

Asked whether the businesses’ assets might be the proceeds of crime, Knoop said: “From what we have heard and seen, we don’t think so, but we don’t know.”

The practitioners have already put a plan in place. “If you want to attach, we are happy to keep the money in trust, and you guys can do your fighting and, when the fight’s over, tell us who to pay it to. That’s going to be our stance. We are not here to look after any shareholding,” Knoop said.

Another challenge that landed at the practitioners’ feet when they were appointed was a R104-million penalty by Eskom for the Optimum mine falling short on a coal supply agreement.

It was anticipated that Optimum would be paid about R52-million by Eskom in February but the utility withheld it in light of the penalty. As a result, there was no money to pay salaries and the workers downed tools. The practitioners quickly raised the money by selling coal on forward contracts. They have also raised enough money to cover operational requirements in the coming months.

Eskom did not respond to a request for comment but its hardened stance may be because a new board has a mandate to root out corruption and remedy poor governance at the utility, which in the past flouted due process to offer the Guptas favourable terms.

A problematic coal-supply contract between Optimum and Eskom expires toward the end of the year — which would change the business entirely, Knoop said.

“I did 2 000km last week between Tuesday and Friday, just here, just around the mines,” Klopper said at the Protea Hotel adjacent to OR Tambo International Airport, where the meetings were held with company creditors this week.

Twenty-five working days after their appointment, the practitioners must produce a rescue plan for creditors to vote on. Legally, larger creditors get proportionately more voting power but Klopper said there was no one large creditor but many smaller ones owed amounts ranging from R10 000 to R3-million.

If they vote against the plan, the company will be liquidated but the practitioners are working hard to secure the best possible outcome.

“We look after staff and look after creditors — that’s what business rescue is all about,” said Klopper.