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The Gupta family “raped and pillaged” the productive companies they controlled to subsidise unprofitable ones, and to pay for everything from houses to their jet and a game farm, said business rescue practitioner Johan-Louis Klopper when he spoke to a room full of the family’s creditors this week.
He and Kurt Knoop have been appointed to run eight Gupta companies, including the Optimum and Koornfontein coal mines, Shiva Uranium and VR Laser Services, as well as the Guptas’ property investment companies Confident Concepts and Islandsite Investments 180.
Officially, it is the lack of bank accounts that forced the companies into voluntary business rescue, as reflected in sworn statements by directors submitted to the Companies and Intellectual Property Commission.
There are, however, real underlying cash-flow problems, even at fundamentally profitable mining operations, the practitioners admitted to creditors.
On their own, most of the Gupta mines are profitable and perfectly capable of survival, Klopper said.
An “incestuous” network of intercompany loans, however, allows money to move freely between entities in the group.
Optimum coal is owed R2.7bn by other Gupta companies, while Tegeta Mining and Exploration’s biggest creditor is its own subsidiary Shiva Uranium, to which it owes R1.3bn, according to preliminary figures the rescue practitioners have access to.
One creditor at this week’s meetings had evidence of Tegeta paying R5m to Shiva Uranium last month, even though it has been unable to pay all its external creditors.
City Press has seen this Bank of Baroda bank statement for Shiva.
“Whatever cash came in got taken away. It is the same at all the companies,” Klopper told creditors this week at one of eight meetings held in Kempton Park.
“That’s your problem in a group with no proper corporate governance. You cross-subsidise things.”
He told City Press that one would expect all the loans in the group to ultimately “cancel out”, but that only eight of at least 19 Gupta entities are under his and Knoop’s control.
This means that the companies he and Knoop now run might, as a group, still owe significant amounts to other Gupta entities.
One major entity known to be financially entangled with the rest of the group is Westdawn Investments, which is not under business rescue.
At the meetings this week, irate and frustrated creditors who have been paid sporadically since at least October threatened to withdraw their services and cripple the mines.
There was confusion about whether non-payment of suppliers and late wage payments were due to an actual lack of money or just the incredibly inefficient transaction system the Gupta companies had to make do with when no large commercial bank was willing to deal with them.
Using the Bank of Baroda was “unworkable” and delayed every payment, Klopper and Knoop repeatedly told creditors.
Since about November, the payment of creditors started slipping across the group, though the payment of wages was prioritised, said Rikesh Sewgoolam, the practitioners’ attorney.
The formal reason given by the eight Gupta companies for entering voluntary business rescue was that the Bank of Baroda would close their last bank accounts at the end of this month.
“The mines were raped by the owners,” Klopper told creditors.
“From now on, the cash will go to the company, not into someone’s pocket outside the country,” he told suppliers and creditors of Shiva Uranium.
Each of the eight companies had a separate creditors meeting, with some only drawing one or two representatives from the Bank of India and Bank of Baroda, which are owed millions by the Guptas’ property investment companies Confident Concepts and Islandsite Investments 180.
The infamous Optimum coal mine drew by far the largest crowd this week, with several hundred creditors showing up.
Ironically, the Guptas bought Optimum out of business rescue after former mineral resources minister Mosebenzi Zwane and Eskom strong-armed its previous owner, Swiss multinational Glencore.
Eskom also helped fund the Guptas’ acquisition of Optimum, which comes with a valuable export allocation through the Richards Bay Coal Terminal.
“It is our intention to isolate Optimum from the rest of the group so its income goes towards its own future,” said Klopper.
“Any group entity being used to subsidise other entities is always a problematic situation,” he said.
“It is no secret that whatever money was available in the group was pillaged. Your guess is as good as mine how much left the country,” he later told the creditors of Koornfontein mine.
“We will ring-fence each entity and will not allow intercompany loans for whatever dubious reason to continue,” he said.
Between creditor meetings, he told City Press that this kind of “incestuous” entanglement was commonplace in business rescues.
“You see this in business rescues. They treat companies incestuously and lose track of the profitability of the individual companies,” he said.
NOW WHAT?
Klopper and Knoop were upbeat about the prospects of most of the companies.
VR Laser has an order book of R300m for the next three years, largely with state-owned weapons manufacturer Denel.
The rescue practitioners said they intended to use invoice discounting to get short-term cash. This entails selling invoices to a financial services company, which pays you upfront and then, after taking a cut, pursues payment from your customer.
The Optimum coal mine has been in crisis with late wage payments precipitating a strike by workers last week and creditors owed money from months ago.
Knoop and Klopper have already sold export coal for future delivery to the value of R100m, and told creditors that the mine’s infamous lossmaking Eskom contract to supply coal at R201 a ton would expire in November. At that point, the mine could become a money-spinner.
The rescue practitioners are also able to suspend onerous contracts if it comes to that, Knoop told City Press.
Koornfontein is doing very well, said Klopper. It has had no disruptions and sells all the coal it produces to Eskom’s Komati Power Station in Mpumalanga for a “good price”.
Shiva Uranium, despite its name, has never produced any uranium and has an idle uranium plant. Klopper told creditors that the company produces 15kg of gold a month, but needed to push this up to 45kg.
It also owns the Brakfontein coal mine, which is cross-subsidising the gold operation.
The rehab funds
Legally required rehabilitation funds for the optimum and Koornfontein mines worth R1.7bn are held at the Bank of Baroda, making up the majority of the small local branch’s deposit base.
According to Knoop, he and Klopper might be able to use R200m of this as the funds are seemingly in surplus.
According to Sewgoolam, these funds were erroneously frozen by a court order after the Organisation Undoing Tax Abuse went to court to prevent the Gupta family from removing the money from the country.
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