Gupta quest should have alerted IDC
• Analysts believe Guptas’ request for R250m loan to buy unprofitable Shiva mine should have set off alarm bells
Alarms bells should have gone off when the Guptas approached the Industrial Development Corporation (IDC) for a R250m loan to buy their unprofitable Shiva Uranium mine.
Alarms bells should have rung off when the Guptas approached the Industrial Development Corporation (IDC) for a R250m loan to buy their nonprofitable Shiva Uranium mine.
The IDC should have asked even more questions when, after giving notice in 2013 for the loan to be repaid, the Guptas asked to renegotiate the loan, which had ballooned to about R452m due to interest and the repayment terms. The Guptas made the request through their company Oakbay Resources and Energy (ORE), which bought the mine.
The renegotiations resulted in the IDC granting ORE a quasiequity loan, for which the corporation received 3.56% shares in the company.
Now, with the Guptas disposing of their assets, questions are being asked about whether they will be able to make the final payment of R37.5m by March 2018, especially in view of the possible closure of their bank accounts and with only R2.7m available to them in cash. In June 2017, ORE announced that its cash supply had dwindled from R225m to R2.7m.
ORE and Shiva failed to respond to questions.
The Guptas’ 20 companies, which include ORE, are involved in a court battle to force the Bank of Baroda to keep their bank accounts open. The battle follows the bank issuing them a three-month notice that it was to close all of their accounts.
It is not clear if the family will sell off the Shiva mine, which is not operating as a uranium mine but is mining gold.
In 2016, the IDC lost R90m when ORE delisted from the JSE and it was left with shares it could not sell. The IDC had bought the shares at R9 each, but this had dwindled to R5.80.
Financial analysts believe that hard questions should have been asked long before the corporation granted the loan, especially around assurances on repayments.
Prof Kalu Ojah, Wits Business School deputy director, said such loans were not often granted, especially as such requests were signs that businesses applying for these loans were in financial trouble.
“The risks around these loans, especially for the lenders in terms of nonrepayments, are huge,” he said.
Ojah said the large size of the loan was especially strange.
“The motive for such a loan needs to be questioned.
“The IDC, whose work is around development, has very strict governance rules around the issuing of loans. Questions must be asked about what ‘development’ ORE was involved in to obtain the loan.”
He said the delisting left the IDC with problems. “The IDC has no way of knowing what its shares are really worth.
“They have to pray that they actually have any value.”
IDC spokesman Mandla Mpangase said: “Obviously it [the delisting] is a problem for us. We would have loved to make a return on the shares and we would have loved to have the certainty that these guys bank accounts are open … and they are able to pay us.”
He said the IDC had engaged ORE over the loan’s repayment. Mpangase said that there was nothing suspicious about the loan’s restructuring and that ORE had so far honoured the loan’s terms and that the company had not defaulted.
ORE was not required to make monthly payments, with the loan structure allowing the company to make lump repayments at stipulated periods, Mpangase said.
He said if the Guptas could not repay the loan because their bank accounts were closed, the IDC had “a remedy”. However, he did not go into details.