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Interest rate swap deal of the Gupta kind: It’s a stalemate in Transnet vs Nedbank battle

The swaps involving Nedbank were executed on part of a R12-billion package of loans taken out to help fund Transnet’s acquisition of 1,064 locomotives, a deal also shrouded in allegations of corruption. (Photo: Gallo Images/ Papi Moake) | (Photo: Simon Dawson/Bloomberg via Getty Images) | A Transnet logo in Durban, South Africa. (Photo: Waldo Swiegers/Bloomberg via Getty Images)

Transnet and Nedbank are headed for mediation as negotiations over a tainted interest rate swap deal hit a deadlock.

Transnet’s battle with Nedbank over a controversial interest rate swap deal is headed for mediation after more than two years of tense legal wrangling. 

It’s been suggested that mediation is a sign that Transnet has lost the bid to drive Nedbank into any concession of wrongdoing or convincing the bank to reverse problematic elements of the transaction. 

The swap deal – struck with the help of two Gupta-linked companies on the eve of the Nenegate scandal in 2015 – continues to cost the state logistics company between R75-million and R100-million in extra loan costs each month. 

Transnet told Daily Maverick that it is awaiting Nedbank’s “agreement to the mediation rules”.  In a written response to questions, the state-owned logistics company said the parties had agreed to this process and that a mediator has been identified. 

Nedbank played a key role in the interest rate swap deal involving the state logistics company and one of its pension funds, the Transnet Second Defined Benefit Fund (TSDBF). 

The swaps involving Nedbank were executed on part of a R12-billion package of loans taken out to help fund Transnet’s acquisition of 1,064 locomotives, a deal also shrouded in allegations of corruption. 

The other portion was done with the TSDBF as counterparty. The fund reached a settlement deal with Regiments for repayment of more than R600-million in August 2019. That settlement put paid to litigation emanating from a previous Regiments mandate to administer the pension fund and a deal that resulted in the controversial interest rate swaps. 

But, the swap deal, currently the subject of investigations by the Special Investigating Unit (SIU), the investigating directorate of the National Prosecuting Authority, continues to haunt Nedbank. 

The bank told Daily Maverick that discussions with Transnet and the TSDBF had been ongoing for a number of years.  

“These discussions have related to ensuring that there is a full and proper understanding of the transactions, in which Nedbank acted as a credit intermediary between Transnet and its pension fund. Nedbank has also assisted and cooperated with applicable authorities and remains in contact with them.” 

Nedbank said its engagements with the authorities and Transnet are independent of one another. 

“The engagements between Nedbank and Transnet are subject to an agreement to maintain confidentiality and legal privilege, which Nedbank remains committed to. Nedbank’s activities are conducted ethically and transparently for the benefit of our clients and stakeholders. We remain confident that there was nothing unlawful or irregular in Nedbank’s conduct,” it said in a written response to questions.  

In its entirety, the swap deal had cost Transnet R1.4-billion in additional loan costs by February 2019, according to testimony by former acting GCEO Mohamed Mohamedy at the State Capture commission. Mohamedy, who was not cross-examined by Nedbank, testified that the full set of swaps were likely to cost Transnet a further R3-billion by the end of the loan term in 2030. 

The SIU failed to respond to an inquiry from Daily Maverick, so it is unclear how mediation between the parties will affect its own investigations into the swaps.  

The swaps were executed with the help of Regiments Capital and its offshoot Trillian Capital Partners – in simple terms they involved switching Transnet from a fixed interest rate to a floating one for the loans with Nedbank and the TSDBF as counter-parties. 

It is understood that one of the major bones of contention between the parties has been Transnet’s insistence that the swaps be reversed so as to curb the escalating additional interest costs. 

Confirmation of the mediation process comes on the back of detailed questions by Daily Maverick that included how much the swaps were costing Transnet, what the parastatal has done to try and arrest these costs and whether it has launched legal action against Nedbank. 

Lawyers had previously advised Transnet to approach the high court to review and set aside the deal; however, this was not done and it continued negotiations with Nedbank instead. 

Transnet is expected to release details of the mediation process in due course. DM

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All Comments 13

  • This is just yet another incident of a government or governmental agency being seduced by the sweet siren call of financing their debt with derivative instruments. People would do well to approach entering derivatives contracts with the same mindset as a fly being invited to lunch with the spider. Or less colorfully: the house always wins.

  • If the bank was fascilitating between the company and pension fund then it presumably had none of its own capital at risk (in real terms, not theory).

    If so then given the known corrupt relationship with Regiments, Nedbank needs to do the right thing and roll this back. Pay back the money or many clients and state institutions might never do business with Nedbank again.

  • So transnet employed regiments for financial advice and guidance… they advised them to initiate and proceed with this deal, they approached Nedbank of their own volition and concluded the deal. Now they realize it was a bad idea to employ a unknown advisor, who’s sole reason for advancing this deal, was to extract a large commission for the “deal”, without making their client aware of the negative implications of the deal. The reason for not advising is that they either didn’t have the knowledge or experience to identify or flag this, or if they were it was not in their interests to impart this knowledge to their clients as they would not proceed if the actual facts and risks were apparent. And the ANC and their cadres are blind to this reality….. they want to blame Nedbank, and penalize them for not doing their homework properly… surely transnet through the ANC cadres deployed there should be held responsible and accountable for incompetence. I know the mechanisms don’t exist to do this but that is surely where this should logically be headed. There is a problem with the architecture of the socio-economic ecosystem its structure at present is problematic as it allows this injustice to exist….

  • Read “Traders, guns and money” by Satyajit Das to get some insight on how these types of deals are almost always shady, almost always of most benefit to the financial service provider and not to the client, and almost always driven by an agent who stands to pocket a very lucrative commission.

    In my view Nedbank had a moral and ethical obligation to carefully consider whether their client would have benefited from the swap in the long term and most certainly an obligation to ensure that the client very clearly understood the risks. There is, after all, a lot of public money involved.

    My guess is that Nedbank did do its due diligence and fulfilled its obligations to the client – as greedy as banks are, they do as a rule operate within the law. I can just imagine the eagerness of Regiments to get this deal concluded. In the end, if Nedbank didn’t agree to do the deal, they would have taken it elsewhere. Any call for Nedbank to reverse the deal is now most probably nothing more than simply an appeal to their patriotic duty. But Nedbank also has an obligation to their shareholders.

    So, yet another mess, masterminded by the Guptas, enabled by Jacob Zuma and the ANC, at the cost of the tax payer, the poor, the homeless, the jobless.

  • One just has to look at who the intermediaries were in this and everything falls into place. The big banks need to learn to stay clear of dodgy intermediaries if they want their reputations to remain intact.

  • Secrecy between Transnet, its pension fund and Nedbank comes back to haunt their greed for gain impulses. Now inevitably we the taxpayers are being milked by these idiots! Why is Transnet not going for the Nedbank jugular, in a court of law?

    • Probably because Transnet has in all likelihood been advised that they don’t have a case. Nedbank would almost certainly have fulfilled their legal obligations by being transparent in advising their client with respect to risk.

      While I am no fan of our rapacious banks, be angry with the greedy, criminally incompetent, heartless, ANC-appointed Transnet officials who allowed this to happen, not Nedbank.

      • Hendrik,

        I get the ‘buyer beware’ angle, but in this age a bank (or anybody) needs to have both eyes wide open for corruption. The bank should have noticed a notifiable irregularity and gone to Treasury.

        Perhaps the commissions earned by the bank swayed their judgement?

        That powership deal is pending for major banking deal. It is from 50 feet away a highly dubious transaction and harmful to the country.

        I will certainly take away all my business from any auditor, accountant, attorney, advocate, banker, lender insurer, consulting engineering firm or advisor that CHOOSES to do business with this project.

        It is a choice at the end of the day, ours and the relevant providers’

        • I am in no way attempting to defend the bank’s actions. I share your sentiment that their behaviour was in all likelihood highly questionable. Unfortunately I suspect that they probably did not act outside the parameters of their legal obligations, hence their client’s current attempt at mediation rather than litigation. Of course, I may be wrong in those conclusions too.

  • Not to let Nedbank off the hook but there is insufficient detail in the article to establish if the interest rate swap was required. Banks generally hedge out the market risk, and it not clear if the swap with the pension fund would have passed this risk on.

  • By the time of this deal, the Guptas, their corrupt lieutenants were well known. Why did Nedbank not know about them. I guess bonuses, & commissions trump the ethics. And now they are still fighting on. Nedbank you are as guilty.