How world sees SA: Guptas pulled levers of State to grab Glencore’s Optimum

Allegations have emerged that South African authorities put pressure on Glencore before it agreed to the sale of a coal mine to a local company whose owners are at the centre of the controversy because of their links to the country’s political leadership.

After a long-running dispute between Glencore and South African power utility Eskom, over coal supplied by the mining company’s lossmaking Optimum Coal unit, the entity was placed in business rescue proceedings last year and subsequently sold to Tegeta Exploration and Resources.

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SA’s brilliant cartoonist Zapiro explains the country had little to celebrate on Valentine’s Day. Click here for more Zapiro magic.

Tegeta is a subsidiary of Oakbay Resources and Energy, a Johannesburg-listed company controlled by the Gupta family, which has been embroiled in controversy because of its close links to President Jacob Zuma.

Opposition parties and critics of the Zuma administration allege that the Guptas have enjoyed undue influence with the presidency, including favouritism in business deals. The Guptas have denied the claims.

Tegeta is also part owned by Mabengela Investments, a private company, in which Mr Zuma’s son, Duduzane – who has a history of business links with the Guptas – is a director. He is also listed as a non-executive director of Shiva Uranium, another mining company controlled by Oakbay.

Read also: Glencore “pleased” with mine sale to Gupta – no comment on Mining Minister

South Africa’s department of mineral resources has strongly denied that it pressed Glencore to agree to the sale of Optimum Coal to Tegeta.

However, one person familiar with the deal, who did not want to be identified, said Glencore had faced pressure.

This person said the department of mineral resources had used the threat of regulatory action under South Africa’s mining laws to influence Glencore.

“It was an interventionist strategy with a credible threat from the authorities and it would take a massive company to say ‘No’ to the [department of mineral resources] in the face of a threat like that,” added this person. “It’s never confined to a [single] mine once a [mining] group is a target, the concern is the impact on other operations, that’s why the groups are scared.”

A second person familiar with the Optimum Coal transaction said Glencore had privately made it known the company felt its “arm twisted” to agree to the sale to Tegeta. A third person said bankers involved in the deal were told by a senior official at the department of mineral resources that Optimum Coal had to be sold to Tegeta.

Last August, Glencore initiated so-called business rescue proceedings at Optimum Coal, because the unit was suffering “financial hardship” due to the terms of its coal supply contract with Eskom.

Shortly afterwards, the department of mineral resources briefly suspended Optimum Coal’s operating licence for what it described as the “inhumane” way Glencore planned to cut about 380 jobs at the unit.

In December, the business rescue practitioners overseeing Optimum Coal announced the unit was being sold to Tegeta for R2.15bn.

The Tegeta purchase involved paying off much of Optimum Coal’s debts. Glencore agreed to pay R400m to settle the remainder of the borrowings, enabling the transaction to be finalised.

Read also: Gupta’s Coal-gate: Eskom’s Molefe says focus on cost, not mine ownership

Glencore declined to comment on the specifics of the Tegeta deal.

It said it had been “working with the [business rescue practitioners] of Optimum Coal and all other stakeholders, including government, over the last few months in order to identify a sustainable solution for Optimum Coal”.

It said it was “pleased with the terms of the transaction”.

Oakbay said last week that in acquiring Optimum Coal it “prevented a liquidation that would have seen 3,000 people lose their jobs” but declined to comment about the allegations that Glencore was put under pressure by the department of mineral resources.

Oakbay did not respond to a question about whether the Guptas enjoy undue influence with the Zuma presidency, including favouritism in business deals such as the Optimum Coal transaction.

Mosebenzi Zwane, South Africa’s mining minister, has admitted that he flew to Switzerland to meet Ivan Glasenberg, Glencore’s chief executive, before the Optimum Coal deal was struck.

Mr Zwane said he did not go there specifically because of Optimum Coal, but rather to meet a chief executive investing in the country. He said he did not help find a buyer for Optimum Coal.

He also dismissed suggestions that the Guptas received any favours from him or the South African government, saying the family was treated like any other investor. “I’m not going to be bought by anybody,” Mr Zwane said.

The Gupta family moved to South Africa from India in 1993 and has various business interests, including media and mining.

(c) 2016 The Financial Times Ltd.

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