The R7bn rip-off

2010-02-06 11:42

GOVERNMENT-owned lender, the Industrial Development Corporation

(IDC), is facing two audacious lawsuits from Johannesburg businessman Joe

Modibane, who is demanding R7.2 billion and R277 million from the funder.

Modibane, who is a former chairperson of the IDC’s phosphate

subsidiary, Foskor, is suing the lender for R7.2 billion for allegedly reneging

on a deal to sell him 35.3 million shares it held in steel producer Iscor in


The lawsuit will once again train a spotlight on Modibane’s

controversial one-time close friend, Khaya Ngqula, who was chief executive of

the IDC when the repudiation of the agreement occurred.

In court papers, Modibane argues that the IDC – which was once a

major shareholder in Iscor – made a U-turn on selling the Iscor shares to his

­special-purpose vehicle company, Basfour 2581.

The shares were worth R400 million when the deal was struck in

April 2002. But when Modibane launched the lawsuit in September 2008 the value

of the shares had climbed to over R7 billion, thanks to a runaway share price

appreciation triggered by high global steel prices.

“In consequence of the defendant’s (IDC’s) repudiation of the

agreement, the plaintiff (Basfour) suffered damages in an amount of R7.2

billion,” the court documents read.

In an interview this week, Modibane said he was shocked to learn

that the Iscor shares, which were initially earmarked for black investors, were

sold to global steelmaker LNM Holdings, a company founded by Indian billionaire

Lakshmi Mittal.

Iscor, whose present-day name is ArcelorMittal South Africa, is

part of a steel empire that produces approximately 10% of the world steel

output. In 2008 ArcelorMittal had a gross turnover of $124.9 billion worldwide.

The company has a controlling stake in its JSE-listed South African operations,

while the IDC holds about 8.8% of ArcelorMittal SA.

Modibane has questioned why ArcelorMittal SA, a company built with

South African taxpayers’ money, was sold to a foreign investor who has ignored

calls for a black economic empowerment (BEE) deal with local investors.

“The family jewels (Iscor) were sold to Mittal for a few pieces of

silver,” he said.

The matter will be heard on May 20 this year at the South Gauteng

High Court.

Modibane said the IDC’s repudiation of the Iscor transaction led to

the demise of his close friendship with Ngqula, with whom he had shared a room

in 1981 when both men were trainees at global IT giant IBM in New York.

“We are no longer friends and I have not spoken to him for six

years,” he said.

Attempts to reach Ngqula, who was the IDC boss between 1997 and

2004, had not borne fruit at the time of going to press.

IDC spokesperson Kesebone Maema said the lender was confident of

successfully defending itself against Modibane’s lawsuit.

“The matter is being defended as the IDC had no such agreement with

Modibane, as he had failed to comply with the terms and conditions ­attached to

the proposed transaction,” she said.

In the second lawsuit, Modibane and his nephew, Tsholofelo

Modibane, are suing the IDC for R277 million.

This lawsuit stems from a contract they signed in April 2001 with

the IDC in which they pledged their 51% shareholding in IT firm MrPrepaid Group

as security in return for a R2.5 million loan from the lender.

The Modibanes are exploiting a clause in the contract which

­instructs the IDC to pay them an amount equal to the value of the stake minus

the R2.5-million loan in the event of their defaulting.

“We have defaulted, so they must take the shares and pay what is

due to us. The pledge of shares agreement says the IDC must pay the difference

between the value of the shares and our indebtedness to it,” said


He said MrPrepaid was worth R280 million, based on a tender the

company won in the Democratic Republic of Congo (DRC) to roll out hardware and

software for pre-paid devices for the country’s national lottery, which is going

to be run by that county’s parastatal, Sonal.

MrPrepaid rolled out the lottery equipment but Sonal has not paid,

leading them to default on their loan with the IDC.

The DRC lottery is still not operational.

Maema disputed that the financier was indebted to Modibane and said

his R277-million claim was outrageous and amounted to a thumb-suck.

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