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Gupta firm contests Optimum-Vitol deal

12 Apr 2018 15:48 (+01:00 GMT)
Gupta firm contests Optimum-Vitol deal

Cape Town, 12 April (Argus) — Gupta-owned Oakbay Investments has launched a court action to contest a 12-month coal supply deal between South Africa's Optimum and Koornfontein mines and trading firm Vitol.

Oakbay is the holding company for eight firms that entered business rescue in February after their owners, the India-born Gupta family, fled the country to avoid corruption charges. At the time, Kurt Knoop and Louis Klopper were appointed business rescuers of all eight, including the Optimum and Koornfontein mines, the Optimum terminal and Tegeta Resources, which wholly owns the mines and terminal.

But Oakbay has now filed for them to be removed as Optimum's rescuers and replaced with two new nominees, despite the fact they were originally appointed by all eight rescue entities, including Optimum itself.

Klopper announced on 10 April a one-year, 200,000 t/month supply deal with Vitol that will ensure around 200mn rand/month ($17mn/month) for the Optimum and Koornfontein mines and save them from liquidation. They also signed a 12-month management agreement with Vitol's partner, investment firm Burgh Group.

But Oakbay argues that the deal is detrimental to the interests of the mine and its stakeholders, claiming that it suggests "collusion and a secret interest" and raises questions over the rescuers' independence.

Oakbay contends that Vitol's pre-agreed price of R1,000/t represents a discount that is double the R42/t rebate for 150,000-200,000 t/month prevalent in the current market. It will amount to a loss of $700,000/month, it says.

Burgh will be paid a management fee of at least 1pc of turnover, around R5mn/month, Oakbay says. In addition, around half the additional $3.50/t rebate — or around $350,000/month — will be paid to the rescuers as a "kickback", it claims.

Oakbay also said Burgh attempted to have some 25,000t of coal valued at around R25mn loaded into trains over the weekend of 6-8 April. This did not go ahead because the mine's rail siding safety certificate had expired, it adds.

Burgh intends to load large amounts of coal onto trains for export, while Optimum has not received any payment or security for payment, which is at odds with standard practise, Oakbay argues.

Oakbay also contends that the rescuers failed in their main purpose, which was to secure new banking facilities for Optimum ahead of the Bank of Baroda ceasing to operate in South Africa on 31 March. The Bank of Baroda provided services to the entire Gupta business empire.

Burgh will not only take over the mine's management but also facilitate banking on behalf of Optimum through its own bank account. According to Oakbay, this is "highly irregular and indeed illegal" given that Burgh is not a bank or a registered deposit-taking institution.

Optimum was instructed to transfer all its funds to Burgh, but refused because its request to see the management agreement was denied on the basis of confidentiality, Oakbay says. "Optimum will not comply without having seen the agreement and proof of Burgh's status as receiver of deposits," it states.

Oakbay further argues that the rescuers' appointment to oversee eight of the Gupta group's firms is inappropriate because it would inevitably lead to conflicts of interest — as a result of certain inter-company loans, for example.

Earlier this month, Klopper and Knoop appointed two extra practitioners — Juanito Damons and Kgashane Monyela — to oversee the Optimum and Koornfontein mines. The move came in response to the National Union of Mineworkers' demand that rescuers be appointed who were not elected by the companies concerned.

But Oakbay, among several others, has pointed out that these appointments have no legality because by law only a company's board or a court can make such an appointment.

The Gupta-owned investment firm asked South Africa's high court to hear its application on 17 April.