Johannesburg - State-owned freight and rail transport company Transnet lost billions of rand when it decided to hedge its R12billion loan and R11.3bn in debt to benefit a Gupta-linked company.
The commission of inquiry into state capture on Wednesday heard that Transnet swopped the interest rates regime for its R12bn loan from a consortium of lenders and sidelined its officials with knowledge and skills in concluding these transactions.
Multipurpose Business Solutions’ Dr Jonathan Bloom told the commission headed by Deputy Chief Justice Raymond Zondo that Transnet performed the R12bn swops in two tranches - R4.5bn in December 2015 and the remaining R7.5bn in March 2016.
According to Bloom, who was contracted by Mncedisi Ndlovu and Sedumedi Attorneys to be part of the multidisciplinary team investigating malfeasance at Transnet, the projected total loss in the entire exercise of changing the interest rates for the R4.5bn from floating to fixed is more than R1.8bn.
The interest rates for the R4.5bn portion of the loan were fixed for 15 years at 11.83%, which Bloom said was substantially and abnormally high.
Although the difference between 11.16% and 11.83% is just 0.67%, Bloom described it as significant considering the amount involved.
“The important thing is that this is not normal,” he said.
Bloom said Gupta-linked company Regiments Capital was the executing agent in the transaction but that it was not necessary for an external party to be involved. He said Transnet’s treasury had enough capacity to execute these deals and it was not necessary for Regiments to be appointed.
In every swop transaction, Bloom said, Regiments would be paid and its payment was included in the rate Transnet was charged.
The R7.5bn swop was at 12.27% interest rates from floating to fixed and Regiments was paid fees for executing the transaction.
Bloom described the swop transactions on a floating rate and changing into fixed rate as questionable and said the hedging transactions were also dubious and fees and costs to Transnet were excessive.
“Transnet was not in the money,” he said, adding that Transnet treasury employees who had the knowledge and the skill were sidelined.
Bloom said Regiments submitted an invoice to Transnet for payment of R7.5million when the company was a supplier development partner of multinational investment bank JPMorgan, which was initially appointed to hedge the financial risks (credit and currency risks) of Transnet’s purchase of 1064 locomotives in April 2015.
The payment, Bloom said, was fraud, unjustified and unwarranted and Regiments could never have been part of the transaction.
Transnet also came under fire for its strange decision to hedge R11.3bn of its debt from floating to fixed interest rates.
“Transnet was betting against its pension fund (the Transnet Second Defined Benefit Fund},” Bloom told the commission.
“This is very unusual in terms of using a pension fund as a counterparty to a swop transaction,” he said.