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How Nedbank was in bed with Gupta-linked Regiments Capi...



How Nedbank was a bedfellow with Gupta-linked Regiments Capital

Nedbank has become one of the most high-profile private sector companies to feature negatively in South Africa’s State Capture story, as it was involved in a destructive Gupta family-linked business arrangement that has cost public entities billions of rands in losses.

Not only has the business arrangement caused serious damage at Transnet but it also targeted the Airports Company South Africa (Acsa) – two state-owned entities (SOEs) that are important for the country’s economy.

But the governance of the SOEs and their economic contribution to the country were weakened, as they were the sites of State Capture during Jacob Zuma’s nine-year presidency.

Nedbank is mentioned in the first and second parts of the State Capture Commission reports for all the wrong reasons and its relationship with financial services firm Regiments Capital, which is linked to the Gupta family, has been questioned by Judge Raymond Zondo.

Nedbank’s relationship with Regiments has arguably been the most destructive at Transnet, as the commercial bank provided the SOE services of restructuring the interest on its debt, and received lucrative fees for doing so.

Zondo, in his second State Capture report, which dives deep into the affairs of Transnet, has found that Nedbank’s work at the SOE has caused it “significant prejudice”, as Transnet incurred losses of about R1.8-billion that might never be recovered. Zondo has merely questioned Nedbank’s work at Transnet and no adverse finding was made against the bank.

Details about Nedbank’s controversial relationship with Regiments and its work at Transnet – which started in December 2015, days before the Nenegate scandal (the firing of former finance minister Nhlanhla Nene that caused ructions in financial markets) – are not new. They have been thoroughly exposed by investigative journalists, mainly amaBhungane, through the Gupta email leaks.

But the State Capture reports underscore that, for sophisticated corruption and the plunder of public funds to flourish, it required the private sector’s participation. The reports are also a blight on Nedbank’s reputation because banks are highly regulated and the burden is placed on them to detect and report corruption, fraud and other suspicious activity.

How Nedbank continued to work closely with Regiments from 2015 to restructure the interest rate on Transnet’s debt – despite heightened media reports at the time implicating Regiments in high-level corruption and money laundering to benefit the Guptas – remains a mystery. It’s not clear if Nedbank conducted due diligence on Regiments or if it was aware of and reported any suspicious conduct linked with the company.

Hennie van Vuuren, the director of Open Secrets, a nonprofit organisation that blows the whistle on economic crimes, has long argued that banks have been the facilitators of suspicious transactions in the State Capture story. In some cases, they have failed to detect and report pernicious transactions to law enforcement authorities even when they must do so.

Van Vuuren says that like key State Capture enablers such as members of the Gupta family and ethically compromised CEOs of SOEs, banks must be held accountable for enabling the destruction of public institutions.

Transnet brings in help from outside

The involvement of Nedbank and Regiments at Transnet started after the SOE embarked on a massive capital investment programme in 2011 to modernise its fleet of locomotives. Transnet ended up procuring 1,064 locomotives from Chinese manufacturers, mainly China South Rail and China North Rail.

Transnet wasn’t in a strong financial position to fund the purchase of the locomotives and needed to mobilise funding from lenders.

It approached a consortium of lenders for a loan facility of about R12-billion. The loan from the lenders is broken down as follows: China Development Bank R3-billion; Absa R3-billion; Nedbank R3-billion; Futuregrowth R1.5-billion; and Old Mutual Specialised Finance R1.5-billion. The loan, which was approved by 1 December 2015, was facilitated and arranged by Regiments.

Transnet needed help to negotiate the terms of the loan, as the portion from the China Development Bank was denominated in US dollars and any volatile fluctuations in the rand exchange rate would make the loan more expensive. It also needed help with negotiating the terms around the interest rate on the China Development Bank portion of the loan. After all, the China Development Bank loan (about R3-billion) carried a high interest rate of between 12.9% and 13.3%, whereas Transnet’s average cost of debt (or interest) was about 9.4%.

Around August 2014, Anoj Singh, the Transnet group CFO at the time, pushed for the SOE to appoint Regiments as an adviser to manage the R12-billion loan and the interest rates associated with it. Singh sidestepped Transnet’s internal treasury team, which would normally be responsible for managing the company’s money, debt and financial risks.

Singh argued that the R12-billion loan from the consortium of lenders was too complex for Transnet’s treasury team to manage, necessitating the SOE’s request for help from Regiments. This was despite Transnet’s treasury team comprising top-shelf corporate finance individuals, who have combined experience of more than 50 years.

Zondo found that the use of outside help by Transnet, in the form of Regiments, was highly irregular. Eventually, Singh hired Regiments in August 2014, a decision that was supported by former Transnet CEO Brian Molefe and Siyabonga Gama, the SOE’s former CEO of the freight rail division.

Start of Nedbank’s relationship with Regiments

Regiments also needed outside help to restructure the interest on the R12-billion loan. So, it approached Nedbank for help on 4 December 2015, three days after the loan from the consortium of lenders was approved.

Involving Nedbank would arguably create a conflict of interest for the bank, as it partly funded the R12-billion loan while also helping to restructure Transnet’s interest rate on the loan. Put differently, Nedbank would effectively be a player and referee.

To restructure the interest rate on the loan, Regiments executed an interest-rate swap arrangement between Transnet and Nedbank. At a basic level, an interest-rate swap happens when two parties agree to swap the kind of interest rate they pay on loans, which would include swapping a floating/variable interest rate for a fixed one. Swaps are essentially a gamble on what interest rates will be in the future. During an interest-rate rising cycle, fixing an interest rate could make a loan and interest payments cheaper. But down the line, fixing interest rates (especially below-market interest rates) costs more later.

With each interest-rate swap, fees would be paid to Regiments and Nedbank for their work. From 2014, Regiments scored fees of more than R265-million for work that could have been ordinarily done by Transnet’s treasury team. In the same breath, Nedbank earned fees, but it’s unclear what the full amount is.

In its entirety, the swap deal had cost Transnet R1.4-billion in additional loan costs by February 2019. The full set of swaps is likely to cost Transnet a further R3-billion by the end of the R12-billion loan term in 2030.

Nedbank was also involved in the restructuring of interest rates at another state-owned entity: Acsa. In the first State Capture report, Nedbank is highlighted for its “disturbing” involvement in the interest-rate swap deal worth R3.5-billion involving Acsa. Nedbank also worked with Regiments at Acsa.

Nedbank responds

Neil McCarthy, the executive head of risk of corporate and investment banking at Nedbank, submitted a statement to the State Capture Commission in June 2019, defending the bank’s conduct regarding Transnet’s interest-rate swap arrangement.

He confirmed that Nedbank had worked closely with Regiments in arranging the interest-rate swaps based on a mandate signed by Singh for the bank to restructure Transnet’s interest rate on its debt. McCarthy said Nedbank’s arrangement with Regiments was not unusual and the bank received no objections from Transnet’s treasury team to take on the work. McCarthy also made no mention of the Regiments money laundering scheme that benefited members of the Gupta family, with Zondo suspecting that Nedbank possibly had “no or insufficient knowledge of it”. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.


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All Comments 16

  • At best Nedbank were grossly negligent in their dealings with Regiment, at worst they were complicit. The NPA are unwilling or incapable of investigating/ charging the facilitators of corruption/ State Capture ie the money launderers. It is incumbent on all concerned citizens and companies to boycott the likes of Nedbank and the accounting firms that year after year approved the accounts of companies involved in State Capture and money laundering.

  • And when I get a R2500.00 payment into my Nedbank account from Bookings.com I have to jump through all sorts of hoops to have it cleared. And to add insult to injury even have to pay them a fee for my troubles. What a joke!

    • No different from any other commercial bank. They target the small legitimate clients’ accounts and make then jump through hoops while turning a blind eye to the heavyweights.

    • I agree Johan. When it suits them, they are wide awake.. But when it comes to billions in profits the blind eye comes into play.
      My least favourite institutions, banks, accountants and auditors.

      • Alley Cat:

        A fish rots from the head and some lawyers, bankers, advisors, auditors sailed through State Capture without any reputational damage.

        My pet peeve : the lawyers and advocates that engage in lawfare defending the indefensible persons now going to court.

  • One of the major omissions of the Zondo Commission was a full and proper interrogation of the role played by the entire SA banking industry in at least facilitating and at most actively participating in state corruption at all levels(involving the Guptas or not).
    The cash flows (internal and external) alone should have triggered blocks and reporting to the FIC and SARB.
    On that basis alone the banks were complicit.
    Nedbank is even more deeply mired and protests innocence at every turn.
    The Banking Association should be calling for its member banks to step up and make full disclosure. If Bain and Co are to be demonised and made to pay back then the banks should follow suit-with the individual names of the office bearers involved being revealed.
    As also said by this writer-the FIC, SARB and SARS have failed dismally in their duty to uphold their respective regulations and bring parties to book.
    To my knowledge, not a single case has been prosecuted and ruled upon in terms of the statutory powers these bodies enjoy, nor are we told about what monies have been recovered and paid back-so presumably none.
    The hard working tax paying middle classes are left angered and bereft of hope.

    • Richard, you’re quite correct. The commercial banks turned a blind eye but they have a profit motive. The SARB and FIC are supposed to play a watchdog role but failed to lift a finger. Of course SARB behaves like a reborn virgin but really doesn’t do its job well.

  • has a specialist looked at the pricing of the swap? NEDBANK would certainly have priced their friction/bribes into the deal that taxpayers footed.

    Imagine the commissions.

    Nedbank : time for a mea culpa. If not, disgusted customers will vote with their closed accounts. Let’s make it 30 June for deadline. Then the accounts start closing.

    • Erm, no there will be no disgusted customers to close bank accounts… there will be no civil reaction whatsoever. No one cares. Not even for more pressing issues, let alone corruption.

      • Erm, this customer is thinking of closing her accounts because of this. Nedbank’s sky high bank fees don’t help.
        But…. are any of the other banks any better?
        I suppose at least their corruption hasn’t been proved yet!

  • Nedbank should pay back the profits… If the deal was wrong (they know it was), “pay back the money (plus interest that was charged 12%)”, anything less is not acceptable.
    No “retirements”, no “early packages”, wonder who signed off on the compliance? This is not small money; this would have been discussed up to board level. Keep going DM don’t stop, there’s got to be board discussions or senior managers prepared to spill the beans.

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