How IDC was forced to invest in Oakbay | Fin24
 
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How IDC was forced to invest in Oakbay

Dec 10 2017 06:00
Dewald van Rensburg

Johannesburg - A last-minute, hand-written amendment to a contract forced the Industrial Development Corporation (IDC) to trade R256 million for now-worthless shares in the Gupta family’s Oakbay Resources and Energy at inflated prices in 2014.

The controversial loan restructuring agreement the IDC signed with Oakbay in March 2014 has been made public in the state financier’s belated court application to reclaim the money – and outstanding capital on a 2010 loan – totalling R287.5 million.

The agreement has a crucial clause on what happens in case of a “trigger event” like Oakbay listing on a stock exchange, which it did in November 2014.

This clause was initially favourable to the IDC and simply gave it the option of claiming outstanding debt in the form of shares, if it elected to.

It said that Oakbay would immediately repay the R250 million capital of the loan if it listed.

The signatories, however, scratched out both of these protections using pen.

These deletions turned the deal into a trap that let Oakbay escape repaying millions by manipulating its share price and giving the IDC no option but to pay a massively inflated price for them.

This last-minute amendment is the only change made to the lengthy contract.

The revelation of this contract finally solves the mystery of why the IDC paid so much for Oakbay shares.

Market commentators have long argued that the price at which the IDC traded debt for shares made no sense at all and overshot even Oakbay’s own valuation of its assets by almost 100%.

The IDC in effect paid R9 per share, which was a 10% discount on the “listing price” of R10.

This listing price, however, values Oakbay at R8 billion, when its own expert valuation of its mining asset at the time was only R4.6 billion.

Economic Development Minister Ebrahim Patel announced two weeks ago that the IDC would reclaim the money – and give Oakbay back the shares.

This would be done on the basis of “various misrepresentations and breaches of warranties” allegedly committed by Oakbay.

FRAUD, THEFT AND FRAUD AGAIN

In its court papers, the IDC reveals the “misrepresentations” it is relying on to have the 2014 agreement scrapped.

In reality, the IDC is asserting that Oakbay committed a series of crimes which breached the generic warranties in the agreement.

Oakbay warrants that: “no part of its business has been conducted in a manner which is corrupt or has involved payment of any bribe or improper consideration or violates any applicable laws”.

The IDC asserts that Oakbay is guilty of two counts of fraud and contraventions of the Prevention of Organised Crime Act (Poca) and the Financial Markets Act (FMA).

The IDC claims it learnt of a variety of crimes Oakbay had committed thanks to the media and the leaked Gupta emails.

The main event it relies on is the Vrede Dairy scandal in 2013.

This saw Gupta-linked company Estina score a R114 million-per-year deal from the Free State provincial government to set up a dairy operation.

Instead, Estina redirected R84 million of the first R114 million to another company called Gateway.

Of this, R31 million was laundered through intermediary companies in Dubai and ultimately paid to Oakbay.

This money was the source of the R30 million infamously used to fund the Gupta wedding at Sun City in 2013, that propelled the family into the national consciousness.

Despite explicitly relying on media reports and documents from the Gupta leaks, the IDC says these allegations are true.

“The IDC asserts that these facts are true and correct,” reads the IDC’s particulars of claim, which were prepared by senior counsel Geoff Budlender.

The Vrede saga amounted to fraud against the Free State government, says the IDC.

In addition to that, the R31 million that made its way back to Oakbay amounts to an offence under Poca, says the IDC.

Specifically, it is an offence under the section of the act dealing with the use of the proceeds of unlawful activities, it argues.

The fact that Oakbay knew about all of this and still claimed that its business had not broken any laws amounts to another count of fraud, says the IDC.

“The fraudulent misrepresentation induced the IDC to enter into the loan restructuring agreement and thereby prejudiced it from receiving payment of the sums then due, owing and payable.”

THE SHARE MANIPULATION

The IDC also relies on Oakbay’s apparent scheme to manipulate the “listing price” of Oakbay Resources shares, in order to minimise the shares it gave the IDC in return for the debt it owed.

The leaked Gupta emails have revealed how Oakbay CEO Ronica Ragavan instructed a Singaporean company controlled by Gupta ally Salim Essa to buy small tranches of Oakbay shares immediately after it listed on the JSE, to create the illusion of demand at a price of R10.

This was done with $1 million (about R13 million) supplied to the Singaporean company by Oakbay.

The creation of this “artificial price”, combined with the amended agreement the IDC signed, forced it to trade a R256 million debt for shares at a price that bore no relation to Oakbay’s actual value.

This was a contravention of the FMA, said the IDC.

THE AGREEMENT

The IDC debt stems from a R250 million loan to Oakbay in 2010 to buy its uranium mine which was subsequently renamed Shiva Uranium.

This was meant to be repayed in 2013 with the accrued interest of over R200 million.

Instead, Oakbay pleaded to restructure the loan so it could repay the R250 million in capital in tranches up to 2018.

The accrued interest of R256 million was then converted into Oakbay shares.

The original contract, drawn up before the hand-written amendments were added, was vastly different.

It called for Oakbay to immediately repay the R250 million capital when it listed on a stock exchange.

It allowed the IDC to “have the option” to have the interest settled in shares if it “elects” to.

The IDC responded to questions by saying the issues will be ventilated in court and it would be prejudicial to the IDC to comment beforehand.

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