Nedbank raises alarm on stalled police lease deal

2012-03-03 08:39

If Roux Shabangu’s R500 million police lease deal was deemed invalid by the courts, it would have “far-reaching ramifications” for government’s similar BEE property deals financed through all the major banks.

This is the contention by Nedbank, which loaned Shabangu R248 million to buy and refurbish the Middestad building in Pretoria in 2011, in papers lodged with the North Gauteng High Court this week.

The bank is “intervening” as an “affected” respondent against the department of public works, which wants the court to nullify Shabangu’s lease agreement.

In the court papers, Nedbank’s legal head, Lisa Ruch, warns that all similar property deals “will be in jeopardy” and if the court ruled in favour of the department, “public sector funding by the major banking institutions may be materially and adversely affected”.

“Not only would the validity of the lease agreement and many similar agreements be affected, but BEE property financing by Nedbank in general would be seriously compromised,” contends Ruch.

Nedbank’s litigation comes hot on the heels of an announcement last week by Minister of Finance Pravin Gordhan that the department would probe 3 867 lease contracts worth R300 billion that the department entered into with property companies.

Nedbank’s application adds a twist to the leasing debacle that has claimed the scalps of two ministers and led to the suspension of police commissioner Bheki Cele and two directors-general.

The bank is blaming senior department officials, including axed Minister of Public Works Gwen Mahlangu-Nkabinde, for the police leasing debacle and said it wanted to withdraw from funding Shabangu’s purchase of the Middestad building in Pretoria, but the department reassured Nedbank the lease was valid.

Nedbank’s affidavit reveals that on more than seven occasions the department gave Nedbank “repeated assurances” that it would honour the lease and proper processes were followed when the lease was signed.

Ruch claims that in a meeting on September 14 2010 between the department and representatives of the five major banks – Standard Bank, FirstRand Bank, Absa, Investec and Nedbank – suspended public works director-general Siviwe Dongwana reassured the executives that none of the leases signed by the department would be set aside due to the controversy over Shabangu’s lease with the department.

According to Ruch, this was after the banks expressed concerns about the department not fully committing to Shabangu’s lease agreement despite Shabangu’s lease being similar to leases used by all banks to fund mainly government BEE property deals.

Nedbank argues that the main reason banks have doled out finance for property is because the financee, like Shabangu, held a valid and binding lease.

“This is because the funding model used in this case is widely employed by the banking industry in order to provide public sector funding.

“This funding is entirely reliant on the validity of the underlying government leases and the efficiencies of the department in making monthly rental payments,” says Nedbank.

Ruch contends that the department gave reassurances that the lease agreement complied with sections 66 and 68 of the Public Finance Management Act, Treasury regulations and the department’s BEE strategy
tender policies.

But the department’s assurances contradicted Public Protector Thuli Madonsela’s finding last year that Shabangu’s lease was unlawful and invalid.

State attorney Moipone Mosidi said they were studying Nedbank’s application and were yet to decide whether to oppose it, although last year her office had declined the bank’s request to intervene in the case.

There are fears that if the public works investigation into the leases uncovers more rot, companies that are found to be on the wrong side of the law could face Shabangu’s fate, and the funders of those lease contracts could find themselves in Nedbank’s position.

But if banks are anxious about the outcome of the department’s case against Shabangu, they are not showing it.

Instead, banks approached by City Press for comment welcomed Gordhan’s announcement of a probe into leases.

Said Marcel de Klerk, an executive from Absa retail and business banking unit: “We have taken note of the investigation by the department of public works and would support any measure that ensures improved transparency.

“We are engaging with the Banking Association of South Africa and the department of public works in this regard. We are comfortable with our existing exposure to the department and all lease commitments are being met.”

Sizwe Nxasana, the chief executive of banking group FirstRand, said he was not concerned about its outcome.

“The investigation is not a major issue in our lives. I am not losing sleep over it,” Nxasana said.
Billion Group, led by property tycoon Sisa Ngebulana, said it was hoping for a speedy conclusion to the investigation.

Said Mike Rodel, Billion Group’s chief operating officer: “We believe the (tendering) system is not as transparent as it could be. It is in everybody’s interest that the investigation is concluded as soon as possible so that the government can move forward with awarding new leases for new office space.”

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