Attorneys advise Transnet to sue Nedbank over interest rate swap deals

State-owned entity Transnet’s attorneys have advised that it take Nedbank to court, if necessary, to recover R1.5 billion, attributed to the fraudulent and illegal acquisition of locomotives from China and Bombardier at highly inflated prices, reports City Press.

Mncedisi Ndlovu & Sedumedi (MNS) Attorneys advised Transnet in the latest bid to recover billions the logistics company has bled through corruption and malfeasance during the Jacob Zuma presidency.

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During the commission of inquiry into state capture earlier this week, Transnet acting group CEO Mohammed Mahomedy said Gupta-linked Regiments Capital assumed a conflicted role of transaction advisor and executor, and was paid R227 million for swapping interest rates in billion of rands worth of loans that involved the Transnet pension fund, Nedbank and the China Development Bank, among others.

The loan in question involving Nedbank amounts to nearly R12 billion, and would cost embattled Transnet an additional R5 billion in additional interest by the time the loan is paid in 2030, sources revealed to City Press.

“…[T]he swapping of the interest rates so early in a 15-year, long-term transaction, exposed Transnet to paying much higher terms than originally agreed,” Mahomedy said.

During his testimony at the Zondo Commission, Mahomedy said former Transnet group treasurer Phetolo Ramosebudi in December 2015 made a recommendation to acting group financial officer Pita, for financial institutions to make an early swap of interest rates from floating to fixed in the 15-year multibillion-rand transactions to fund the acquisition of the 1046-type locomotives.

Regiments was appointed to negotiate the transaction.

MNS Attorneys have advised that Transnet try everything in their power to get out of the interest rate swap deals, adding that during this process, Nedbank should be brought to book to seek “just and equitable remedy”, to the tune of R1.5 billion.

The bank is alleged to have received 90% of R780 million from Transnet as a result of the ‘irregular’ interest swap deal, which Nedbank strongly denied. It maintains that all deals done with Transnet were legitimate.

According to Transnet spokesperson Molatwane Likhethe, it had begun engaging Nedbank in talks, which are set to continue.

An interest rate swap involves a contract in which future interest payments are exchanged for another, based on a specified amount. This typically involves exchanging a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to changes in interest rates, or to get slightly lower interest rates that would have been viable without the swap, explains Investopedia.

When Transnet signed the club loan with Nedbank in December 2015, it was reportedly agreed upon that market-related floating interest rates would be used.

The interest rate swap was executed by Regiments days after the agreement, which Mahomedy said there was no justification for Regiments to be contracted to do. Three months later, another interest rate swap was executed by the Gupta-linked advisory firm.

“Transnet treasury had the capacity to do the work, which led to R227 million being paid to them out of the company’s pension fund.”

Nedbank says claims that they have pocketed the R780 million is incorrect, and that the decisions made on interest rates was between Transnet and Regiments, and not Nedbank.

The bank also contested much of Mahomedy’s testimony.

(Compiled by Nica Schreuder, additional reporting by Brian Sokutu)

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