Millions lost as IDC projects fail
IDC loans worth more than R200m to two projects call into question the state organ’s ability to conduct due diligence on funding proposals and manage risk. Whether the organisation will get its money back on the two deals is anyone’s guess
● While finance minister Enoch Godongwana is contemplating drastic measures to cut government spending and wastage, the state-owned Industrial Development Corporation (IDC) appears to have spent millions of rands funding projects that never got off the ground.
The Sunday Times has learnt of at least two deals, now mired in legal wrangling, where entrepreneurs were together given grants of more than R200m between 2016 and 2019. The IDC has not received a cent of these loans back.
The IDC is a state-owned development finance institution tasked with supporting development through industrialisation while contributing to an inclusive economy.
However, its ability to assess proposals and manage risk has been called into question by its decision to lend R36m to Siyanda Dlamini, 40, to buy and refurbish a 30-room boutique hotel, River Meadow Manor, in Irene, Pretoria.
Dlamini says he discovered only after the sale had gone through that the property he bought from Rosina Topka, 62, and her husband Udo, 66, allegedly included illegal structures such as rooms and a conference centre, did not have permits to operate at night and on weekends, and was embroiled in 18 civil disputes with neighbours and the City of Tshwane over regulatory noncompliance and trading outside permitted hours.
Dlamini has laid a charge against the Topkas, which is being investigated by the Hawks, and has taken them to court to recover part of what he paid for the property. The Topkas declined to comment, saying the matter was before court. In their court papers, they deny making any misrepresentations to Dlamini, and say they sold the property to him voetstoets.
Unfairly accused
In the other case, the IDC granted industrialist Manana Bogatsu R170m to set up South Africa’s first liquefied petroleum gas (LPG) manufacturing facility in the Coega special economic zone outside Gqeberha in 2016. Bogatsu’s attorney, Gavin Simpson, said the business never got off the ground because the project ran out of funds, and it appeared the IDC had miscalculated the project’s overall cost.
Simpson said the IDC unfairly accused Bogatsu of misappropriating some of the project money.
“And they then foreclosed on her such that she went into business rescue. Now they are disposing of all assets,” he said.
The LPG project was presented to parliament in 2016 as an example of how to fasttrack growth and encourage localisation by having industry players produce gas cylinders for the local market. The plant could have bolstered government efforts to increase LPG use for cooking, heating and lighting, thereby reducing electricity demand — a key strategy to combat load-shedding.
“The equipment is still at the Coega special economic zone,” said Coega spokesperson Ayanda Vilakazi. “The facility has been leased to another tenant.”
The IDC’s 2022/23 financials show that by March it had written off R4bn in loans that can never be recovered, while a further R750m were impaired.
It isn’t clear whether Dlamini’s debt was written off or if it remains in the impaired column, but IDC corporate services head Tshepo Ramodibe said they were not party to Dlamini’s litigation and would not comment on it.
Alleged misrepresentations
“IDC advancement of loans is based on the funding request from an applicant. Each party does its own due diligence for its own account,” Ramodibe said.
Asked if the IDC’s own due diligence failed on this transaction, he said: “A due diligence was conducted by both the IDC and Mr Dlamini/Siyandasebelo Trading.” He did not elaborate on the quality of the process.
River Meadow Manor, which employs 50 people, lies diagonally opposite the Jan Smuts House Museum in Irene and once belonged to former prime minister Jan Smuts.
Dlamini approached the high court in Pretoria to reduce the purchase price by half, arguing he would not have bought it had he known there were illegal structures and other problems. Dlamini’s R18m claim includes the R12m purchase price, R1.1m for alleged breaches of the property agreement, and R1m for expenses such as architects’ fees to obtain certificates of occupation and “legitimise unlawfully constructed” buildings.
Dlamini told the Sunday Times the alleged misrepresentations affected the business badly because he did not know he couldn’t hold conferences and other functions such as weddings between 1pm on Saturday and Monday morning.
“The business did not comply with all relevant statutory legislation regarding the handling, preparation and serving of food, and the City of Tshwane’s health department had not issued the business with a certificate of compliance.”
Dlamini also listed a dysfunctional
R600,000 solar system as pertaining to one of the previous owners’ alleged misrepresentations. “The solar system has never worked, yet they insist it was functional. I only found out later that, at the time they were negotiating with me, they were in a legal dispute with the company that installed the solar system,” he said.
An asset register prepared for the sale of the property shows the lodge’s buildings were valued at R29m, while furniture and fittings were worth R2.2m.
However, Dlamini claims he learnt after taking over that the property’s 100-seater boma used for functions and conferences had been built without city approval.
A City of Tshwane site map of the property does not show some of the structures, including a block of eight bedrooms, a glass conservatory, a generator room, a 50-seater pool gazebo, a garden gazebo, and a 12-seater function room.
Dlamini said in court papers that he had to demolish the boma, and that the illegal structures constituted half of the property and were valued at about R10m.
“Some of the other structures breached building restrictions and building plans, and an occupancy certificate did not exist.”
A former senior IDC official with extensive knowledge of its processes said there should have been a professional valuation conducted independently by an outside expert “not to just ensure that all is in order ... but to also ensure that [what will be paid is] the right value”.
“There is no way the credit committee or executive management would approve that transaction without that report,” the former employee said.
Critical processes
Dlamini said a R15m loan, which was part of the R36m he obtained from the IDC to renovate and develop the property, was now accruing interest.
In court papers, the Topkas deny that they made any misrepresentations to Dlamini, saying he had failed to point out in his claim “where and when the misrepresentations were made”.
“[Dlamini] pleads that [the Topkas’] conduct amounted to misrepresentation, but the ambit of the conduct is not pleaded ... The particulars of the claim [are] vague and embarrassing, and the defendants are prejudiced because they cannot plead thereto,” they say.
They also argue that “in any event, the property was sold voetstoets”, in terms of the agreement of sale with Dlamini.
Explaining the IDC’s funding procedure, Ramodibe said an application was subjected to “various critical processes” and was then sent to “the relevant approving committees” and the IDC’s executive committee.
Asked whether risk assessments were done in both cases, he said: “The applicants would have attached supporting documents to their funding application — among other things — proving compliance of their application [with] various statutory regulations.
This process is part of the external risk assessment done by the applicant.”
“In addition to the external risk done at the behest of the client, the IDC does its own risk assessment — which is one of the key determinants to approving a transaction.”
Asked where things went wrong, he said: “Disbursements on an approved transaction are sometimes made in tranches subject to an applicant meeting [certain] conditions precedent [CPs]. Failure to meet other CPs that were tied to additional disbursements would result in cancellation of further disbursements — sometimes including an entire facility.”
Gauteng Hawks spokesperson Col
Katlego Mogale confirmed that a case had been opened, and that “several issues [need] to be ironed out ... for the case to move forward”.
Attorney Storm Barry from Ulrich Roux & Associates said a buyer usually had greater protection when a property was sold through a professional broker such as an estate agent, but in a private sale “the seller is not obliged to provide the purchaser with a disclosures list”. However, she said such a list “is nevertheless recommended to protect both the purchaser and seller should a dispute arise”.
Barry said the onus was on the seller to bring the buyer’s attention to all the defects they were aware of.