Zondo: Guptas used armour company as a 'vehicle' to capture Denel

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The State Capture Commission says that the Guptas tried to pressure former Denel CEO Riaz Saloojee to have the group do business with the family.
The State Capture Commission says that the Guptas tried to pressure former Denel CEO Riaz Saloojee to have the group do business with the family.
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  • The involvement by the Guptas in VR Laser, a supplier to Denel, was part of efforts to capture the state defence technology company.
  • The state capture report highlights how former Denel CEO Riaz Saloojee was pressured by the Guptas for business opportunities.
  • Saloojee and two other executives were eventually pushed out of Denel, to enable its capture by the Guptas.

The Guptas and their associate Salim Essa used a supplier, VR Laser Services, as a "vehicle" to capture state defence technology company Denel, the State Capture Commission has found.

The commission, led by Acting Chief Justice Raymond Zondo, on Tuesday handed to the Presidency the second part of its report. It is split into two volumes and focuses on capture of Transnet and Denel.

"The entry into VR Laser by the Guptas and Mr Essa was effected with the intention of using it as a vehicle with which to capture Denel," the report read.

VR Laser provides armour plate and steel for the defence industry and was established in 2007. It was one of the largest, most important and reliable suppliers to Denel, the report noted. VR Laser's main shareholders were John van Reenen, Gary Bloxham, and MJ Jiyane and his wife.

Eventually, in 2013, Essa bought a 74.9% stake in VR Laser from Bloxham and Van Reenen, via his company Elgasolve. Jiyane and his wife eventually sold their remaining stake (25.1%) in VR laser in 2014 to Craysure Investments.

"This evidence shows that the Guptas bought control of a significant supplier of armoured steel to Denel," the report read.

The commission had heard how awarding two Denel contracts to VR Laser in 2014 and 2015 ran into hundreds of millions of rands. The contracts were linked to the construction of armoured vehicles, Fin24 previously reported.

The report also flags three large contracts irregularly awarded by Denel to VR Laser. It recommends that law enforcement agencies investigate these contracts for breaches of the Public Finance Management Act. The contracts are one concluded in November 2014 between Denel Land Services (DLS) and VR Laser, another concluded in May 2015 between DLS and VR Laser and one concluded in December 2015 between Denel Vehicle Systems and VR Laser.

Meetings at Saxonwold

The report notes how Essa had reached out to former Denel CEO Riaz Saloojee in 2012. Essa had invited Saloojee to meet "certain individuals" who could assist Denel with future business.

Initially Saloojee did not respond to these invitations, but Essa told him the requests came from the "very top".  Saloojee eventually agreed to the meeting and found himself at the Gupta compound in Saxonwold, where he met Tony and Atul Gupta, along with former public enterprises minister Malusi Gigaba.  

"According to Mr Saloojee, Minister Gigaba said to him that 'these people' were his friends and that he hoped that they and Mr Saloojee could work together."
State capture report

At a separate meeting at Saxonwold, Saloojee met Duduzane Zuma, former president Jacob Zuma's son, and a man introduced as Ace Magashula's son. Essa had told Saloojee that the Guptas wanted to do business with Denel and get it into other markets such as the Middle East and Asia. According to the report, Saloojee told them that they have to go through "proper channels" to do business with Denel.

At another meeting in 2012, Tony Gupta had put pressure on Saloojee to cooperate with the family. According to Saloojee's testimony, the Gupta brother has said he should take money because "everyone does".

The commission also heard from Saloojee that it was apparent that Tony Gupta was becoming "frustrated" with him for "putting obstacles" in the Guptas' path with regards to their plans for Denel.

The commission noted that it was clear the Guptas had no intentions to compete for Denel's business. "From the outset, they put pressure on Mr Saloojee to privilege their chosen vehicle, VR Laser, above any other competitor suppliers," the report read.

"Then, when Mr Saloojee showed that he would not dance to the Guptas' tune, steps were taken to gain control and oust Mr Saloojee."
State capture report

The commission singles out former public enterprises minister Lynne Brown's appointment of a new board in 2015 without input from officials from the department. The move effectively removed control of Denel from a "competent and honest" board, which had been successful in their term between 2011 to 2015.

The board had left Denel with its highest order book in its history at R35 billion, and the company had expanded into markets such as the Middle East, Africa, South America and the Far East. Denel was solvent and liquid at the time. But Brown did not ask them to serve a second term, which has been questioned by the commission.

Instead, the newly appointed board, led by Daniel Mantsha, in 2015 made a decision to suspend Saloojee, chief financial officer Fikile Mhlontlo and company secretary Elizabeth Africa. The board did not act expeditiously in testing allegations made against the executives and eventually paid them huge settlements to get them out the company. According to the commission, these actions were aimed at "facilitating the capture of Denel by the Guptas".

The commission also flagged that Mantsha had been struck off the roll of attorneys, due to a long list of acts of misconduct, the report read. He had previously represented former president Jacob Zuma. He was stuck off the roll in 2007 and reinstated in 2011. The commission said that Brown "did not do her homework" before appointing Mantsha. 

"The fact that she did not do that homework is an indication that she must have been given this name by the Guptas and there was, in her view, no need to do that kind of background check because she sought to appoint whoever the Guptas wanted."
State capture report

Mantsha was one of the key role players that enabled the Guptas and Essa to capture Denel, the report indicated.

VR Laser in turn suffered reputational damage through its association as a "Gupta-controlled company," and was also negatively impacted by the decision by banks to withdraw facilities to Gupta companies.

"The reputational damage which Denel suffered from its capture and the fact that the control of Denel passed into unscrupulous hands was enormous. The evidence shows that rebuilding Denel will take a long time. That is if Denel does not go under," the report read. 

Denel has been battling with financial issues and allegations of corruption over a number of years. It has also struggled to pay staff salaries due to its financial woes. In August 2019 National Treasury granted Denel a R1.8 billion recapitalisation lifeline. It was allocated R576 million for the 2020/21 fiscal year, Fin24 previously reported.

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