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The Gupta family’s listed company, Oakbay Resources & Energy, faces an uncertain future on the JSE after its auditor, KPMG, and its sponsors Sasfin and Absa cut ties with the company.
Oakbay, which owns mining assets, including Shiva Uranium and Eskom supplier Brakfontein coal mine, is valued at just more than R10 billion.
On Friday, KPMG spokesperson Nqubeko Sibiya confirmed that they had decided to withdraw as the auditor of all the “Gupta-owned and controlled companies”.
According to Fin24, the political storm surrounding the Gupta family’s friendship with President Jacob Zuma and allegations of “state capture” lie at the heart of the decision to drop the wealthy Guptas as clients.
City Press has now also learnt that Oakbay will lose its JSE sponsors and corporate advisers after Sasfin served its notice in the middle of last month.
“Sasfin gave notice of our termination to Oakbay on March 15. The termination is effective as of June 1,” said spokesperson Cathryn Pearman.
Oakbay also appears to have lost Absa as its banker.
At the time of Oakbay’s listing on the JSE in November 2014, Absa was Oakbay’s banker.
However, an Absa spokesperson this week said: “Absa Bank can confirm that we have no relationship with Oakbay Resources.”
The spokesperson declined to say when or why Oakbay and Absa had parted ways.
“We do not comment on confidential customer information,” said the spokesperson.
In an internal email that was leaked to Fin24, KPMG CEO Trevor Hoole told staff: “The recent media and political interest in the Gupta family, together with comments and questions from various stakeholders … have required us to evaluate the continued provision of our services to this group ... We have decided that we should terminate our relationship with the group immediately.
“I can assure you that this decision was not taken lightly, but in our view the association risk is too great for us to continue ... It is with heavy hearts that we have reached our conclusion, and there will clearly be financial and potentially other consequences to this, but we view them as justifiable.”
Asked why Sasfin had decided to terminate its relationship with Oakbay, Sasfin’s head of corporate finance, Francois Otto, said: “The termination of Sasfin Capital’s services follows a recent decision to align Sasfin Capital’s corporate finance division’s strategic objectives more closely with that of the broader Sasfin Group.”
The JSE’s listing requirements mean Oakbay has 30 days to find and appoint a new sponsor.
The company must also find a JSE-approved auditor, but with firms pulling out due to the potential reputational hazard, it remains to be seen whether it will succeed.
Oakbay Resources & Energy is 80% owned by the Gupta family’s private company, Oakbay Investments. The Industrial Development Corporation owns 3.57% of Oakbay Resources & Energy after controversially agreeing to convert a R256 million loan into equity.
City Press asked other companies that provide services to the listed Oakbay Resources & Energy if they plan to follow suit:
. iThemba Governance and Statutory Solutions, which acts as company secretary, and transfer secretary Trifecta Capital Services declined to comment.
. Mineral Corporation Consultancy, which acts as Oakbay’s competent person, did not respond.
At this stage, there is no indication that KPMG’s decision to withdraw as auditor points to a negative finding in any of the Guptas’ companies.
“It’s purely a business decision,” said SA Institute for Business Accountants CEO Nicolaas van Wyk, adding that reputational risk was a perfectly acceptable reason for ending a relationship.
“If Sasol went into fracking and you did not want to be associated with that, that’s a good enough reason [to remove yourself],” said Van Wyk.
Alan Mukoki, CEO of the SA Chamber of Commerce and Industry, agreed.
“There is nothing unusual about it ... audit firms do it all the time. They might think there is reputational risk or that the association is not doing them much good. This time, it just happens to be more public.”
Xolani Qubeka, the secretary-general of the Black Business Council, said that while it was “obviously an unusual corporate move … every company has the right to review their relationships with their clients”.
Referring to KPMG’s move, Willi Coates, a senior executive at the SA Institute of Chartered Accountants, said: “Auditors are required to periodically review the continuation of recurring client relationships in accordance with the policies and procedures that the firm has established, in line with the international standards on auditing. If, in the auditor’s professional judgement, a client relationship should be discontinued, the auditor may do so.”
The Guptas have often pointed to their 15-year-long relationship with KPMG as proof that the family’s business affairs are above board.
Apart from its majority stake in Oakbay Resources & Energy, Oakbay Investments is a shareholder in a number of private equity investments and joint ventures, such as Sahara Computers, JIC Mining Services, The New Age newspaper, TV channel ANN7 and Clifftop Lodge.
City Press tried to reach both Oakbay Resources & Energy and Oakbay Investments for comment, but emails, phone calls and SMSes went unanswered.
In a response to Fin24 on Friday, an unnamed spokesperson merely confirmed that “KPMG is no longer the auditor for Oakbay Investments”.
Should auditors, who have made millions in fees from the Gupta companies, be forced to pay back the money if the state capture probe reveals evidence of wrongdoing?
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