Fin24

Nedbank raises alarm on lease deal

2012-03-04 15:34

Johannesburg - If Roux Shabangu’s R500m police lease deal is deemed invalid by the courts, it would have “far-reaching ramifications” for government’s similar BEE property deals financed through all the major banks.

This is the contention by Nedbank, which loaned Shabangu R248m to buy and refurbish the Middestad building in Pretoria in 2011, in papers lodged with the North Gauteng High Court this week.

The bank is “intervening” as an “affected” respondent against the department of public works, which wants the court to nullify Shabangu’s lease agreement.

In the court papers, Nedbank’s legal head, Lisa Ruch, warns that all similar property deals “will be in jeopardy” and if the court ruled in favour of the department, “public sector funding by the major banking institutions may be materially and adversely affected”.

“Not only would the validity of the lease agreement and many similar agreements be affected, but BEE property financing by Nedbank in general would be seriously compromised,” contends Ruch.

Nedbank’s litigation comes hot on the heels of an announcement last week by Minister of Finance Pravin Gordhan that the department would probe 3 867 lease contracts worth R300bn that the department entered into with property companies.

Nedbank’s application adds a twist to the leasing debacle that has claimed the scalps of two ministers and led to the suspension of police commissioner Bheki Cele and two directors-general.

The bank is blaming senior department officials, including axed Minister of Public Works Gwen Mahlangu-Nkabinde, for the police leasing debacle and said it wanted to withdraw from funding Shabangu’s purchase of the Middestad building in Pretoria, but the department reassured Nedbank the lease was valid.

Nedbank’s affidavit reveals that on more than seven occasions the department gave Nedbank “repeated assurances” that it would honour the lease and proper processes were followed when the lease was signed.

Ruch claims that in a meeting on September 14 2010 between the department and representatives of the five major banks – Standard Bank, FirstRand Bank, Absa, Investec and Nedbank – suspended public works director-general Siviwe Dongwana reassured the executives that none of the leases signed by the department would be set aside due to the controversy over Shabangu’s lease with the department.

According to Ruch, this was after the banks expressed concerns about the department not fully committing to Shabangu’s lease agreement despite Shabangu’s lease being similar to leases used by all banks to fund mainly government BEE property deals.

Nedbank argues that the main reason banks have doled out finance for property is because the financee, like Shabangu, held a valid and binding lease.

“This is because the funding model used in this case is widely employed by the banking industry in order to provide public sector funding.

This funding is entirely reliant on the validity of the underlying government leases and the efficiencies of the department in making monthly rental payments,” says Nedbank.

Ruch contends that the department gave reassurances that the lease agreement complied with sections 66 and 68 of the Public Finance Management Act, Treasury regulations and the department’s BEE strategy
tender policies.

But the department’s assurances contradicted Public Protector Thuli Madonsela’s finding last year that Shabangu’s lease was unlawful and invalid.

State attorney Moipone Mosidi said they were studying Nedbank’s application and were yet to decide whether to oppose it, although last year her office had declined the bank’s request to intervene in the case.

There are fears that if the public works investigation into the leases uncovers more rot, companies that are found to be on the wrong side of the law could face Shabangu’s fate, and the funders of those lease contracts could find themselves in Nedbank’s position.

But if banks are anxious about the outcome of the department’s case against Shabangu, they are not showing it.

Instead, banks approached by City Press for comment welcomed Gordhan’s announcement of a probe into leases.

Said Marcel de Klerk, an executive from Absa retail and business banking unit: “We have taken note of the investigation by the department of public works and would support any measure that ensures improved transparency.

“We are engaging with the Banking Association of South Africa and the department of public works in this regard. We are comfortable with our existing exposure to the department and all lease commitments are being met.”

Sizwe Nxasana, the chief executive of banking group FirstRand, said he was not concerned about its outcome.

“The investigation is not a major issue in our lives. I am not losing sleep over it,” Nxasana said.
Billion Group, led by property tycoon Sisa Ngebulana, said it was hoping for a speedy conclusion to the investigation.

Said Mike Rodel, Billion Group’s chief operating officer: “We believe the (tendering) system is not as transparent as it could be. It is in everybody’s interest that the investigation is concluded as soon as possible so that the government can move forward with awarding new leases for new office space.”
- City Press

Comments
  • marnusmnorval - 2012-03-04 15:53

    Wonder if they really thought it was legit

  • Paul - 2012-03-04 15:58

    LOL... Yes Nedbank. How could this possibly affect BEE deals? There was no tender. Should that not have set off the alarms. Nedbank is already in the crapper with Pinnacle as well. From their dealings with Pinnacle, I would say their hands are far from clean when it comes to supporting BEE. I laud the government for investigating the corruption.

      Tshekedi - 2012-03-04 22:05

      I totally agreen with you Paul. Nedbank seems to be playing an unfair game with the Property BEE deals. Pinnacle's share is worth 0.01c at the moment with with how they played their hand with Pinnacle and ABSA on a single equity stock. I now wonder, on their principles, if they are again involved.

      Kevin - 2012-03-05 06:29

      COME ON NEDBANK - ANSWER THE QUESTIONS.I WILL NEVER DEAL WITH THIS BANK

  • goyougoodthing - 2012-03-04 16:03

    Screw all the banks, they were all fully aware of not only the situation, but also that is was and is ethically flawed. They only care about money, not citizens. Screw them all.

      Craig - 2012-03-04 16:58

      Nice to see the Banks get screwed for a change, but they just gonna put up their Bank Charges 10% to recover money. Life is tough as "Joe Public"

  • brett.macdonald1 - 2012-03-04 16:03

    Take the knock Nedbank! If you buy a stilen car, it still belongs to the original owner! It will teach you to get yourself involved in insider-trading with corrupt politicians!

  • acsteyn - 2012-03-04 16:06

    HOW ABOUT RACISM IN REVERSE? BEE property deals financed through all the major banks. Ruch contends that the Public Works department gave reassurances that the lease agreement complied with sections 66 and 68 of the Public Finance Management Act, Treasury regulations and the department’s BEE strategy tender policies. Said Mike Rodel, Billion Group’s chief operating officer: “We believe the (tendering) system is not as transparent as it could be. It is in everybody’s interest that the investigation is concluded as soon as possible so that the government can move forward with awarding new leases for new office space.” Racism is never transparant when it comes to money, is it?

  • Didi Schoeman - 2012-03-04 16:08

    I'm pretty sure Nedbank knew exactly what they where getting into... Over inflated rentals and dodgy BEE property deals, its a very long gravy train and they knowingly facilitated it. Trying to cash into a corrupt system is bound to get you burned as many companies are going to find out... What comes around goes around!

  • trevor.padayachee - 2012-03-04 16:18

    Nedbank is just worried about the loss of revenue should this deal be cancelled, my concern is that many corporates both SA and multi-nationals are doing "deals" with both goverment and individuals that they would have shunned 5-10 years and this all in the name of greed. In the case of public works leasing buildings from people like Roux Shabangu, why can't the department get treasury/SARB to fund these leases or even better buy these buildings instead of outsourcing to companies that rely on banks to fund the deals who anyway get their money from the reserve bank. This is when I have to question Capitalism???

      Paul - 2012-03-04 16:55

      I agree with trevor. Why does government not purchase or build offices. Why the middle man?

      Kevin - 2012-03-05 06:28

      They deserve to not only lose revenue earned at the expense of the taxpayer , someone must do time.

  • Craig - 2012-03-04 16:47

    Tsk...Tsk...Tsk... and the Banks trusted the Goverment to tell them the truth??? You IDIOTS... hehehehe

  • louis.langenhoven - 2012-03-04 17:05

    I'm afraid two wrongs don't make a right Nedbank...(and I bank my meager little earnings with you nogal!) I guess what needs to be done is to find all the persons guilty of corruption, take them to the cleaners and Nedbank can get whats left...if anything. Then you will increase our bank costs again to the 9'th but we are used to that already...

  • Sam - 2012-03-04 17:51

    Wow, a lot of knee-jerk bank haters here, whose prejudice seems to be taking the place of rational thought. The contract in question may well not have been properly authorised, but if it was correctly signed then that doesn't make it fraudulent as such. The whole system would collapse like a house of cards if one party to a contract could cancel at the drop of a hat. Nedbank in this case is a third party who entered into a loan agreement on the strength of a government contract held by their client, and it appears to have exercised due diligence by confirming the validity of the contract with the Department. What else was Nedbank supposed to do? It's easy with hindsight, but that isn't how real life works. Even if Fin24 readers don't want their fun spoiled...

      goyougoodthing - 2012-03-04 18:27

      Sam this is not knee jerk. The 'legality' of these contracts does not make them 'morally right'. They deserve what they get. They are basically all thieves, banks and government alike.

      Mitch - 2012-03-04 18:35

      Valid point.... HOWEVER this transaction smacked of corruption and Nedbank should have questioned this deal when it was first tabled. Surely the exhorbitant rentals that were going to be paid versus the purchase price of the property should have set off alarm bells? Did Nedbank not think of questioning the ethics of being party to the deal? or were some "fortunate" Nedbank employees "paid" to grant the facility?

      Hugh - 2012-03-04 18:54

      Try the same tricks with a bank and they will throw you out the door at the blink of an eye. When the boot is on the other foot they can smell a blatent rip off. What I cannot understand is that under FICA banks have an obligation to report on the possibility of criminal activity Or does the bank see the rip of the tax payer as not being criminal.

  • Derek Gerber - 2012-03-05 05:45

    They should have done their homework. The banks are part and parcel of supporting corruption when it suits them. Where does all the corrupt officials bank? What about the so-called FICA procedures that should establish the sources if deposits?

  • Kevin - 2012-03-05 06:26

    At such an inflated price Nedbank must have known this was a scam. There property division would have known the lease was ridiculous.Nedbank had a duty to the public and taxpayer.Sounds like alot of people are running scared and quickly trying to cover their arses, There are norms in the industry and it would be nice to see if even one of the lease deals makes it into the norms.

  • Grant - 2012-03-05 07:21

    South African society is corrupt fom the head (Zuma) down to the lowest official who feels that if the bosses are coining it, why can't they get a piece of the pie? If all corrupt offials were arrested there would be nobody to run the country. I don't know all the ins and outs of this case but I presume if Nedbank got repeated assurances from the department of public works (in black and white) then the bank can sue and the tax-payer foots the bill again. Sadly we've become just another failed African state.

  • Freedom - 2012-03-05 09:42

    Lets say this building cost R 100million his bought refurbished for R250million. This fraudster then leases it for R500million. The corrupt minister gets fired. The bank loaned him loaned him R250 million knowing full well that the government and taxpayer is getting fleeced for R250 million. I think Nedbank is equally corrupt and that as punishment they should take the loss for their corrupt deal. They can't threaten the government on their other loan deals based on their unsound loans issued.

      Susan - 2012-03-05 10:30

      100% agreed

  • JC - 2012-03-05 10:19

    Expect 2 catch fleas when sleeping with dogs

  • Sam - 2012-03-21 13:54

    Why did Nedbank not notify the parties that the lease was at an inflated rate for the area, surely they were fully aware of the going rates and that the agreement was at a dubious rate, what about FICA ? Silence when it suites them.

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