Business

Guptas feel the heat

2016-04-10 16:00

The boycott and ostracising of the Gupta family by the country’s major financial institutions claimed their first victims this week.

In a sudden fight for survival, the Gupta family’s JSE-listed company Oakbay Resources & Energy on Friday announced that its nonexecutive chairman, Atul Gupta, and chief executive, Varun Gupta, had resigned.

President Jacob Zuma’s son Duduzane Zuma resigned as a nonexecutive director of Shiva Uranium, a major Oakbay subsidiary.

Oakbay said in a statement: “This decision follows a sustained political attack on the company, and the concern that the jobs and livelihoods of nearly 1 000 employees would be an immediate risk as a result of the outgoing directors’ association with the company.

“The outgoing directors are of the view that it would be in the best interests of the company, its shareholders and employees for them to step down with immediate effect,” added the company.

Oakbay announced that Terence Rensen, a company nonexecutive director, would take over as acting chairperson and Trevor Scott, the company’s financial director, would take up the role of acting chief executive.

The move by the three directors to exit comes amid intense pressure on the company following the loss of its bankers, auditor and JSE sponsor.

Without a JSE-approved auditor or sponsor, Oakbay faces the prospect of having its shares on the JSE suspended.

Sponsors are the middlemen between listed companies and the JSE, and listed companies are obliged to have one.

FNB and Absa have cut ties with Oakbay, and auditing firm KPMG has also dropped the company.

Oakbay on Friday announced that a third major local bank had given notice of termination of their banking services.

The third bank could be Standard Bank, as Gupta companies have banking relationships with the company.

However, Standard Bank spokesperson Ros Linstrom declined to comment.

In a letter to staff, which the TimesLive website published on Friday, Oakbay Investments chief executive Nazeem Howa said the closure of the company’s bank accounts had made it virtually impossible to continue to do business in South Africa.

“Without bank accounts, we may find ourselves in a position where we are unable to pay you, our valued employees,” added Howa.

On the other hand, in a late statement on Friday, Oakbay said the group continued to be serviced by “a major Asian bank” with a presence in South Africa. The bank has requested that the company not publicise its name.

The Asian bank Oakbay is referring to is probably Bank of Baroda, which is headquartered in India.

A share-register search shows that a number of Gupta-related companies have opened bank accounts with Baroda.

In their statement, Oakbay said that, through that banking relationship, it would continue to fully service its operational requirements.

Oakbay has been in direct contact with the ministries of labour, finance and mineral resources, as well as the office of the president, to express deep disappointment over the decisions of the banks, he wrote.

The company hopes that the departure of the Gupta family will ease the campaign against it. It says the decisions of several of the company’s banks and auditors to cease working for the firm have not been unexplained.

City Press contacted many of the 30-plus JSE-approved sponsors, as well as some of the 19 approved JSE auditors, this week.

A head of another JSE sponsor said that, seemingly, nothing had changed with regard to Oakbay and the Guptas.

However, the public perception of the Gupta family and their businesses might have changed since the revelations related to the Guptas’ involvement with the finance ministry, in particular.

An executive of a JSE sponsor said that they had already been approached to replace Sasfin, but had declined.

Most JSE sponsors declined to comment, while others spoke on condition of anonymity.

“Anyone looking to take up the Guptas would face a difficult decision, given the reputational risk. It is going to be difficult for them to find advisers to fill their professional and advisory roles,” said another head of a JSE sponsor.

Michelle Krastanov, managing director of Arbor Capital Sponsors, said they were approached by “an existing service provider to Oakbay” to take the job.

“We passed. It was a 30-second conversation,” she told City Press.

“I feel some empathy for them [Oakbay], but we have a good client base and don’t want to get involved in something we know little about.

“I’m not saying they’ve done anything wrong. It’s not about being brave; it’s about being sensible.”

Krastanov said that she’d never seen the kind of concerted snubbing that was now seemingly taking place against Oakbay and the Guptas.

“I think South Africa is tired of corruption and is taking a stand,” said Krastanov.

“The company might not be that bad, but I think people are sending a message.”

She admitted that although there was no proof that Oakbay broke any law or rule, there was an obvious “pattern of abuse and privilege” around the Gupta family.

An executive at another sponsor claimed they were also approached to be Oakbay’s sponsor, but had also said no.

The fear was that existing clients might object, he said.

“I have heard they [Oakbay] are shopping around and lots of sponsors have said no,” he told City Press.

“Oakbay hasn’t breached any legislation. We just don’t want to be associated with them.”

“I don’t blame Sasfin for what they did. They have a reputation to uphold,” said the sponsor.

He added, however, that it seemed hypocritical for corporations to take Oakbay on as a client and then later drop them.

“Reputational risk” was the big buzz phrase associated with the Guptas.

However, a lot of people City Press spoke to said that the departure of Oakbay’s financial advisers couldn’t just be because of “reputational risk” and something more sinister may well have been picked up.

Financial Intelligence Centre media contact Simangaliso Zwane said that the law protected the confidentiality of the reporter of suspicious transactions and prevented the organisation from disclosing any information on whether matters were reported or not, or whether they were being investigated.

However, the Independent Regulatory Board for Auditors’ spokesperson, Lebogang Manganye, said the existence of a reportable irregularity was not confidential.

“We have gone through our records and do not have a reportable irregularity lodged against Oakbay Resources & Energy,” added Manganye.

A PwC spokesperson said their company would probably have come to the same conclusion as KPMG.

“We have no ties to cut with the Guptas, as we do not, as far as we have been able to establish, do work of any significance with their group companies. Had we been formally approached to take on any work, we would have followed the same considerations as KPMG has, and arrived at the same conclusion,” added the spokesperson.

Among the other major banks, Esme Arendse, a Nedbank spokesperson, said that her bank did not, as a matter of policy, provide nonpublic details of its banking relationships.

A head of a JSE sponsor said: “The question is why did they [the banks, auditors and sponsor] take on Oakbay in the first instance? They are obviously seeing a problem.”

Maybe Oakbay’s advisers were expecting that there was going to be a change in leadership in the country, as the Guptas were close friends of President Jacob Zuma, and they were creating a distance between them and the Guptas, the sponsor executive added.

Having KPMG and the two banks quit Oakbay at the same time was what made this “extraordinary”, said another executive at a JSE sponsor.

“It must be hard for them to get a sponsor,” he said. “This business is all about reputation.”

December 8 2019