The Industrial Development Corporation (IDC) is unlikely to ever get almost R300 million back from the Gupta family’s Oakbay Resources & Energy, despite an imminent court bid to do so.
The IDC will, however, finally have to explain why it invested there in the first place – especially at a price outside observers have long said was massively inflated.
Economic Development Minister Ebrahim Patel announced on Thursday evening that the IDC will go to court to get R293 million back from Oakbay. The claim is comprised of R255.5 million in capitalised interest on a R250 million loan it gave Oakbay in 2010, as well as R37.5 million of the loan’s remaining capital.
In an controversial decision made by the IDC, the R255.5 million interest was traded for shares in the ill-fated Gupta company in 2014.
The IDC’s spokesperson Mandla Mpangase said that court papers will be filed next week and that the IDC cannot answer any further questions about the matter. The economic development department also would not answer any questions on Friday.
In his statement on Thursday, Patel said that the money is being claimed back due to “various misrepresentations and breaches of warranties” committed by the Oakbay Group – the wider holding company through which the family controlled ANN7; mining contractor Westdawn Investments; coal company Tegeta; as well as Oakbay Resources.
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The nature of these warranties has never been disclosed.
The IDC has repeatedly defended the transaction as making sense at the time, only to see the company suffer from a downturn in the uranium market. Oakbay Resources’ only asset was the Shiva Uranium operation at the time.
The court case could embarrass the IDC if it reveals that the transaction did not, in fact, make any kind of sense when the transaction occurred.
Outside observers were flummoxed by the state lender’s willingness to fund Oakbay and even more so by its willingness to trade a large part of the debt for shares at what looked like a vastly inflated share prices.
Melanie de Nysschen, corporate finance principal at investment bank Bravura Capital, told City Press on Friday that the valuation of Oakbay was suspect from the beginning.
Before listing on the JSE in 2014, Oakbay commissioned the Mineral Corporation to value the Shiva Uranium operation.
The consultancy came up with a value of R6 billion for the company’s uranium and gold deposits.
Despite this, the IDC agreed to trade R255.5 million for Oakbay shares at a price that valued the company at R8 billion.
This made no sense at all, said De Nysschen.
In fact, Oakbay should not have been valued at anything more than R4.6 billion, she said.
This is because the listed entity only owned 74% of Shiva in the first place.
De Nysschen said Shiva was also known to be a bad asset. Its previous owners, Uranium One, battled to keep it going, she added.
She was incredulous about the possibility that Oakbay misrepresented its prospects enough to convince the IDC that it was getting value for money.
“The outcome here will be sad. They are never going to recover that money. The mine is security for the IDC loan, so the IDC might end up owning the loss-making mine,” she said.
“I’m thrilled that the [economic development] department has done this [taken the matter to court]. It is very commendable and principled, but there is absolutely no chance of getting the money back.”
Before delisting from the JSE earlier this year, Oakbay’s last financial statements reflected a cash balance of less than R3 million – an insignificant amount for a mining company.
Patel’s announcement revealed that Advocate Geoff Budlender was appointed in July to probe the apparent manipulation of Oakbay’s share price to inflate the value by a Gupta-linked Singaporean company.
Oakbay shares were hardly ever traded on the JSE.
Missing R44 million?
The IDC seems to be claiming R44.4 million less than it could be claiming from the Gupta-owned Oakbay.
The IDC’s original loan to Oakbay was made in 2010 and totalled R250 million.
Oakbay was meant to pay the loan back in 2013, but instead it was renegotiated and restructured a year later so that the capital would be repaid in tranches up to 2018. Controversially, the R255.5 million in interest on the loan that had accrued by 2013 was converted into Oakbay shares. This translated into 4% of the company.
Oakbay has been paying only the capital on the debt in tranches ever since. A last R37.5 million of the 2010 loan currently remains outstanding.
The IDC is now claiming the capitalised interest on the loan – which had accrued between 2010 and the 2014 restructuring – as well as the remaining R37.5 million, to come to a total claim of R293 million.
Since 2014, another R44 million in capitalised interest has accrued, but this amount was not included in the IDC’s latest claim against Oakbay. If it were, the IDC’s total claim would be R337.5 million.