Denel Land Systems former CFO defends R12m risky bailout to struggling company #Zondo

This week, the state capture commission continues to hear testimony from Denel executives. The state arms company has been implicated as having been earmarked for lucrative contracts to the influential Gupta family. However, in the lead up to being ‘captured’ by the Guptas through VR Laser, Denel entered into dodgy deals which saw it spend R12,7m in prepayments to acquire a majority stake in LMT. The deal was approved by the Denel board, executives with Pieter Knotze, the chief financial officer (CFO) signing off on it – Bernice Maune. 

By Bernice Maune

When Denel was presented with an opportunity to buy the majority stake of LMT, a weapons manufacturer it had previously done business with, it flouted procurement processes.

At the Zondo commission, Pieter Knotze who was the CFO at the time the deal was structured in 2009, defended the transaction, saying it was necessary for Denel Land Systems (DLS) to become more competitive. Knotze joined DLS in 1989 as a financial accountant and was later promoted to CFO. Knotze holds a BComm degree and an MBA from the University of Pretoria. In 2015, he was appointed a director of business excellence and eventually left Denel in 2018.

The former Denel executive told the commission he was aware of all the supply chain management policies and formed part of the DLS exco that held discussions around procurement, finance and tender processes. In addition, Knotze was an advisor to the then CEO and was took the responsibility of all financial matters relating to DLS.

Knotze was one of the key figures who had the authority to approve the deal to acquire LMT which was cash strapped and short of working capital. When asked why prepayments were made to LMT, as this was not part of the regular supply chain and financial processes, Knotze said he believed they had to secure LMT. At stake was a Hoefyster contract which Denel had won worth R10bn. To fulfil the contractual conditions of that agreement, Knotze says DLS had to quickly buyout LMT. This was despite LMT owing its creditors and being in the red.

In April 2009, the first tranche of R12,7m was made to LMT. Knotze defended the prepayment.

“Advance payments were out of ordinary as they were disguised to channel to the company because it was struggling,” said the evidence leader.

“After interaction with the Denel and board, various reports were given and possible penalties. It was seen as a critical strategic asset and for that reason it was necessary to purchase it. Work on risk order was not out of the norm, so we had to make prepayments so it’s sustainable when Hoefyster starts,” said Knotze.

He added that Denel had to be protected from delivering late on the Hoefyster contract. On the liability posed by LMT, Knotze said they had a “good order book” and were growing fast.

According to Knoetze, there was an explanation by his colleagues that the transaction was not a risk-free decision, he says, however, DLS management would endeavour to put controls in place at LMT in order to improve the LMT business situation.

In 2015, VR Laser was awarded the remainder of the Hoefyster contract. Owned by Duduzane Zuma and the Guptas, this led to LMT taking DLS to court to challenge the decision. The Zondo commission will hear more testimony from Denel executives as to how VR Laser won that contract without meeting tender procurement requirements.

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