Advisory firms revelled in Transnet’s corruption fest

The Zondo report on the impact of state capture on Transnet during 2009 and 2018 has exposed the financial corruption, money laundering and racketeering that took place.

Happily joining in the corruption fest and raking in massive fees were McKinsey, Regiments and Trillian Capital.

The McKinsey Consortium was awarded the contract for the provision of advisory services related to the 1 064 locomotives acquisition, even though it did not meet the test for administrative responsiveness.

By December 1, 2013 the consortium had been paid R11 million even though there was no proper agreement in place. McKinsey ceded its rights and obligations to Regiments on February 5, 2014, though its rights had lapsed in 2013.

Astonishingly, McKinsey had failed to submit audited financial statements to verify its financial stability, which should have disqualified it upfront.

Regiments and Trillian used a large network of shelf companies through which money was laundered. Regiments and Trillian paid 80% of the moneys received to money laundering entities such as Salim Essa’s Chivita and Homix, and Kuben Moodley’s money laundering entity Albatime – all part of the Gupta racketeering enterprise.

Confinement contracts

McKinsey/Regiments were awarded eight significant confinement contracts in the period 2012-2015. (Confinement is a procurement process restricted to one or a limited number of bidders).

Former Transnet CEO Brian Molefe approved the awarding of the contracts, on the recommendations made by Former Transnet CFOs Anoj Singh and Garry Pita.

Read: Alleged money laundering took place under Molefe’s watch

The confinement contracts should have raised many red flags, including that:

• Confinement was used instead of open tender;
• The confinement limit of R1 billion was exceeded;
• No gap analysis was carried out to ascertain whether Transnet had the required skills (Transnet did have the requisite skills, and did not require consultants);
• Payments were to be made to McKinsey “where no contracts existed”;
• Everything was highly confidential (cloaked in secrecy);
• There was an irregular parcelling of transactions; and
• A monopolistic situation was created.

The financing of the 1 064 locomotives

In 2012 Transnet had to source cost-effective funding for 1 064 locomotives. In August 2012 the Transnet board approved a China Development Bank (CDB) loan facility. Singh approved Regiment’s involvement in negotiating with the CDB.

In 2014 the CDB proposed a 15-year loan of up to $2.5 billion at a pricing equivalent to Jibar plus about 4.5%, which was above Transnet’s normal pricing.

Transnet Group treasurer Mathane Makgatho expressed her concern that the loan was “excessively expensive”, and that Transnet did not require Regiments’s services as it had internal treasury capacity. Makgatho noted her discomfort and Regiments’s involvement in an email to Singh and Molefe sent in August 2014.

“She particularly did not support a R26 billion facility being negotiated and led by a transaction advisor ‘in isolation of Transnet’s current R90 billion debt portfolio’”, according to the Zondo report.

Regiments was appointed on January 23, 2014. Makgatho resigned on November 30, 2014.

Makgatho was replaced by Phetolo Ramosebudi, “who had previously worked at SAA and ACSA where he had been involved in corruption and associated with Regiments”.

Payments made to Regiments include:

• A payment of R36.7 million was made between February 18 and April 7, 2014, in terms of a “purported third addendum” letter of intent.

• A payment of R79.2 million was made on April 30, 2014. According to the Zondo report: “There was evidently no legal basis for the payment of this amount.”

• In regard to advisory services on the 1 064 locomotive transaction, the original fee of R35.2 million increased to R41.2 million in February 2014; to R78.4 million in April 2014; and then to R265.5 million – which was paid in July 2015. This signified a 754% increase.

• An “additional success fee” of R166 million was recommended by Singh and authorised by Siyabonga Gama (former CEO of Transnet’s freight rail division). On June 11, 2015, an amount of R189 million was paid, consisting of the success fee of R166 million and value-added tax (Vat) of R23.2 million. Of this, R147.6 million was paid to Albatime, of which R122 million was laundered to Sahara Computers, part of the Gupta enterprise.

Regiments did not produce any savings for Transnet.

The original cost of the locomotives was R38.6 billion, and Transnet ended up paying R54.5 billion.

The 15-year syndicated club loan

In 2015 a R12 billion 15-year syndicated club loan with a floating interest rate was agreed with a syndicate comprising Nedbank (R3 billion), Bank of China (R3 billion), Absa (R3 billion), Old Mutual Specialised Finance (R1 billion) and Future Growth (R1.5 billion). JP Morgan underwrote a ZAR funding facility of $1 billion equivalent, the club loan.

Singh terminated JP Morgan’s role as lead arranger, and Regiments was appointed in August 2015.

In November 2015 Trillian was appointed as the lead arranger to perform various services, including being the primary point of contact for the club loan.

This led to Transnet paying Trillian R93.48 million (R82 million plus Vat) on December 2, 2015. Of that, R74.78 million was paid into the Albatime laundry.

The Zondo Commission noted that “it is hard to see how Trillian could have performed any work as the lead arranger of the loan in the time available”, and that the payment of 80% of Trillian’s fee to Albatime confirms that the entire arrangement was part of the Gupta enterprise’s money laundering scheme.

Recovering moneys

Transnet has issued a summons against Regiments for the recovery of the R166 million.

McKinsey indicated, per a letter from law firm Norton Rose Fulbright to the acting secretary of the Zondo Commission dated August 12, 2021, that it will return the fees received from Transnet for the projects where it worked alongside Regiments.