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Gupta-linked VR Laser Asia eyes R2bn from Denel

May 21 2017 07:10
Erika Gibson

Big money: Denel’s fully armoured Badger infantry combat vehicle. The arms manufacturer is on an all-out mission to get Treasury to approve a 10-year deal with Gupta-owned VR Laser Asia, despite Finance Minister Malusi Gigaba ordering the company to put it on ice. VR Laser landed a lucrative contract for 238 Badger vehicles, called Project Hoefyster, from Denel in November 2013

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Johannesburg  - A company with Gupta ties hopes to rake in more than R2 billion profit over the next 10 years in a deal with state-owned arms manufacturer Denel.

Court documents submitted in a legal battle – as part of Denel’s bid to force Treasury’s approval of the Denel Asia joint venture deal – make it clear why arms firm VR Laser Asia is so keen for the deal to go ahead.

According to its own business plan, VR Laser Asia is of the opinion that there are opportunities worth about $9.2 billion (R121.7 billion) to be exploited in the market, but it says $5.9 billion is a “realistic” expectation.

In this joint venture, VR Laser Asia will contribute R100 million in the form of a loan to get the ball rolling. It will also be a strategic partner as a result of its contact.

For its part, Denel will contribute the product and product knowledge to the partnership. According to the business plan, it has already spent R500 million to develop products.

The projected profit for the joint venture over 10 years is R4.5 billion. As VR Laser Asia has a 49% stake, it translates into a forecast profit of R2.2 billion. Denel will own the remaining 51% of the joint venture.

Salim Essa, who has ties to various Gupta undertakings, is the sole shareholder of VR Laser Asia.

In March, Denel approached the High Court in Pretoria in a bid to compel Treasury and the minister of finance to approve the joint venture.

Lungisa Fuzile, who recently resigned as director-general of Treasury, said in an affidavit that Treasury was of the opinion that the joint venture was hopelessly optimistic and did not comply with legal requirements.

READ: Court must dismiss Denel bid with costs, says Treasury

According to Fuzile, VR Laser was “technically insolvent and does not appear to be in a position to obtain the necessary loans for the joint venture”.

“VR Laser South Africa finances its activities and capital obligation with loan finance through its shareholder. This shareholder is identified as a politically exposed person,” said Fuzile.

He pointed out political undertones associated with the key events between Denel, the creation of Denel Asia and VR Laser.

  • On December 9 2015, Treasury officials met with Denel over the announcement of a joint venture. Treasury wanted to know why Denel had been busy with plans for the deal for months – and had even registered it without seeking the permission of Treasury and the department of public works, as required by law. Treasury refused to rubber-stamp the deal at this meeting.
  • On the same day, then minister of finance Nhlanhla Nene was axed by President Jacob Zuma and replaced by Des van Rooyen. “This is significant,” Fuzile said at the time.
  • Just two days later – after Denel had dragged its feet for months – it submitted its application for approval to Van Rooyen. However, Van Rooyen was removed from the position before it was possible to approve Denel and VR Laser’s application.
  • Ever since, it appears that Denel and former finance minister Pravin Gordhan were involved in a dispute over the joint venture because Gordhan refused to approve it.
  • Just days before Gordhan was also removed, Denel launched its court case and said Gordhan had no reason not to approve the deal.

In his affidavit, Fuzile denied Denel’s allegation that there was any personal dispute between Treasury and the Gupta family. The joint venture did not comply with legislation, he said.

Fuzile was also extremely sceptical about the workability of the plan, saying that VR Laser Asia, which is registered in Hong Kong, was just a shell company which had, to date, not conducted any trade.

Denel’s allegation that VR Laser Asia had an extensive network of possible business which was increasingly expanding, might therefore be without foundation.

This week, Denel confirmed that the chairperson of its board, Daniel Mantsha, met with new finance minister Malusi Gigaba in Durban in a bid to save the Denel Asia venture.

Fin24 reports that Gigaba ordered Denel to withdraw its court case and to put the joint venture on ice.

According to the report, Gigaba’s spokesperson, Mayihlome Tshwete, said Gigaba was worried about the implications of the transaction for Denel’s financial position and because the deal did not make business sense.

According to Fuzile, Denel alleged in its 2016 application for Treasury approval for the creation of Denel Asia that it would assist the weapons manufacturer to gain access to the huge arms industry in India. This after Denel was placed on India’s blacklist in 2005 and had to pay fines amounting to more than R1 billion for having circumvented the country’s arms trade requirements.

But in Denel’s corporate plan for 2015/16, no mention is made of any business plans in Asia.

In his affidavit, Fuzile said it was unclear why there was a sudden change of plan. He also said there were other possible partners in India which were confirmed arms manufacturers.

A court date for the application has not yet been set.

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