How did Guptas qualify for BEE steel deal?

The Gupta brothers, friends of President Jacob Zuma, are ­embroiled in a saga over their eligibility to benefit from empowerment.

Soon after the news that the Gupta brothers had acquired a part of ArcelorMittal SA’s (Amsa) R9-billion empowerment deal last week, eyebrows were raised as to how Ajay, Atul and Rajesh, who immigrated from India in 1993, could be benefiting from black economic empowerment meant for South ­Africans disadvantaged by apartheid.

The Guptas defended their acquisition of a share of the deal that is being allocated to local black people by the steel producer.

Family spokesperson Gary Naidoo said: “The Guptas’ participation in the Ayigobi consortium is not premised on them being black in the definitional sense.

“It must be noted that the BEE legislation does not prohibit non-blacks from participating in BEE companies or consortiums.”

The view concerning the participation of non-blacks in BEE companies was shared by Keith Levenstein, chief executive of BEE consultancy firm, EconoBEE.

“It is incorrect for ArcelorMittal to say that they sold 26% of their business to a BEE partner. The Ayigobi consortium is not 100% black because of the Guptas’ involvement. The BEE points they would earn on the deal as it is structured are few because the consortium is also not broad-based.”

Naidoo said the Guptas facilitated the ArcelorMittal empowerment transaction, which would result in the firm acquiring ­Imperial Crown Trading (ICT) for R800 million and some of the ICT investors becoming shareholders in the steelmaker.
The Guptas earned themselves a 6.25% interest in the Ayigobi consortium, which was awarded the BEE stake by the steelmaker on the basis that some of its shareholders held highly contested iron-ore mining rights in the Northern Cape.
However, empowerment legislation states that BEE beneficiaries must be blacks (Africans, coloureds, Indians and Chinese) who are South African citizens by birth, descent or naturalisation prior to 1993. Naturalised South Africans, who can prove that they would have qualified for citizenship before 1993 had the apartheid policy not discriminated against them, are also eligible.

The Guptas were naturalised after 1993. They were therefore not eligible to be BEE beneficiaries but could still be investors.

Sandile Zungu, the face of the Ayigobi ­consortium, said he had no details of when the Guptas received their citizenship.

“The Guptas brokered the deal and brought ICT and ArcelorMittal together. How else should they have been rewarded?”

Amsa spokesperson Themba Hlengani said the Guptas were part of ICT and “we had no control over the make-up of the ­Ayigobi consortium”.

Tshediso Matona, director-general of the trade and industry department, declined to comment on why the Guptas were beneficiaries of BEE. “I cannot comment on the ­basis of what I have seen in the newspapers about the credentials of the Guptas or whether the deal is BEE compliant. We typically get involved if there is a complaint but at this stage there is no complaint.”

The Ayigobi consortium comprises politically connected people – Duduzane Zuma, the son of President Zuma; Prudence “Gugu” Mtshali, the former personal assistant to ANC treasurer Mathews Phosa; Jagdish Parekh, who owns 50% of ICT; and Zungu.

The state controversially awarded ICT ­an undivided 21.4% of iron-ore mining rights in the Sishen mine that previously belonged to ArcelorMittal after the steelmaker failed to convert the mining rights into new-order mining rights before April 30. As a result, iron-ore miner Kumba scrapped a preferential supply agreement the two companies had since 2001.

Kumba is challenging the awarding of the mining rights to ICT. By making the deal with Ayigobi, ArcelorMittal is trying to regain its mining rights and restore its cheap supply of iron ore, a major steel ingredient.

The Mail & Guardian on Friday reported that Amsa chief executive Nonkululeko Nyembezi-Heita said the BEE and ICT deals would have to pass an internal due diligence investigation in terms of the US Foreign Corrupt Practices Act and satisfy local anti-corruption legislation before coming into force.

The paper said the act required companies to take care when “red flags” were present, which included circumstances where benefits flowed to relatives of politicians or ­decision-makers.
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