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Days of Zondo, Part 2: How Transnet’s ‘highly skilled’ treasury was sidelined to facilitate the logistics company’s capture


Xolisa Phillip has had quite an adventure as a journalist in the roles of subeditor, news editor, columnist and commentator. She pretends to be Olivia Pope during the day, while still maintaining a presence in journalism – a passion project she cannot shake away. Journalism keeps finding Phillip no matter where she is and somewhat manages to hold its own space no matter where she is professionally.

The best and the brightest minds at Transnet’s treasury, qualified to raise debt prudently and manage the company’s liquidity requirements, were snubbed for the cause of State Capture. This is one of the key observations contained in the latest report from the Zondo Commission.

When the facilitators of State Capture swooped in and laid to waste the hard-fought gains of organisation capacity building, about 40 highly trained staff at Transnet’s treasury were reduced to helpless onlookers.

That is one of the key takeaways from Part 2 of the report released by the Judicial Commission of Inquiry into Allegations of State Capture.  

The commission observes that the Transnet treasury function “was marginalised in key financial transactions and ultimately made redundant as its work was taken over and outsourced…” to external financial advisers linked to the beneficiaries of State Capture.  

The treasury function at Transnet was designed to ensure the group has adequate liquidity management to meet the company’s operational and capital needs. The treasury performed this function by “ensuring that funding is sourced cost-effectively within approved risk parameters and without breaching key financial ratios,” notes the report.  

The commission describes the staff at the treasury as possessing “multi-disciplinary skills, competencies and experience”.

The staff included mathematicians, accountants, investment bankers, commercial lawyers, traders, financiers and economists, all with an average of 10 to 30 years of experience in their fields, according to the report.

The corrosive effects of State Capture not only infected the institutional DNA at the state-owned rail and logistics company during and after the perpetration of corrupt deeds, but also undermined internal capacity, particularly at the level of its treasury function. 

As the facilitators of State Capture favoured external financial advisers at “enormous cost”, the treasury was sidelined. That is despite the depth of specialist expertise within the treasury. Furthermore, staff at Transnet’s treasury had the ability, skills, qualifications and experience to raise debt and execute financial transactions in most markets. 

But the treasury was overlooked. Instead, power was consolidated and concentrated among a handful of senior executives and board members, and this “appears to have fostered an authoritarian culture of decision-making rather than inclusive and transparent deliberation”. 

The consequences were that “Transnet became the primary site of state capture in financial terms,” reads a section of the report focusing on the logistics company. That is how Transnet awarded contracts estimated at R42.204-billion irregularly, accounting for 72.21% “of the total state payments in respect of contracts tainted by state capture”. 

The authoritarian culture ensured that internal controls were rendered ineffective. This was achieved by limiting the flow of information, which prevented its scrutiny and concealed the corruption that was taking place at the company. 

Although the report offers a retrospective account of the roots of Transnet’s capture and the costs associated with that, it helps construct a clear picture of how the logistics company now finds itself in breach of covenants because of an audit qualification. 

February 2022 is a critical month for the company. In November 2021, S&P Global Ratings placed Transnet’s foreign currency, local currency and stand-alone credit profile ratings on credit watch with a negative outlook, citing the company’s deteriorating liquidity position. 

Transnet has three months, since the publication of S&P’s credit watch notice, “to resolve the situation and make significant progress on its refinancing plans”. It has been pointed out, however, that S&P’s actions do not have a bearing on Transnet’s covenants. But the qualified audit opinion does.  

S&P characterised Transnet’s liquidity as “less than adequate” while also drawing attention to the company’s “high amount of debt subject to varied and complex covenants, which is uncommon for similarly rated peers”.  

In order to stave off further liquidity pressures and a default risk, Transnet is required to obtain waivers for the covenants in breach and raise enough funding for an upcoming $1-billion debt repayment due in July.

Earlier in November 2021, Moody’s Investors Service made similar observations and proceeded to downgrade Transnet’s corporate family rating. Moody’s also highlighted Transnet’s liquidity as a matter of concern and “weaknesses in corporate governance, particularly in financial reporting and compliance irregularities”.

Despite the negative outlook, S&P noted that: “We view Transnet’s management stability over the past 24 months, following years of churn in the executive-suite and board, as helping resolve long-term management and governance deficiencies.”

But the shadow of State Capture looms large and its aftermath remains consequential, as evidenced by the current situation at Transnet and other similar entities. The sting, as noted in the commission report, emanates from the fact that it was all so unnecessary. The know-how, processes and frameworks were all there to serve as safeguards at Transnet. DM/BM


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