The world is changing fast and to keep up you need local knowledge with global context.
JOHANNESBURG — The demise of Denel under the Zuptoid era is just breathtaking. As the press release from Public Enterprises Minister Pravin Gordhan outlines below, between 2010-2016 the arms company experienced an average growth of 15% per annum, with revenue topping over R8bn in 2016. But then the Guptas and corrupt government cronies got involved, and by December 2017 it needed an emergency government bailout of R580m to pay its 4 000 employees and suppliers. The fall from grace has been swift and spectacular. Now a new board is tasked with performing emergency CPR on the business. The details of who this new board consists of are listed below. – Gareth van Zyl
Media Statement by the Minister of Public Enterprises, Mr Pravin Gordhan, MP
Appointment of a new Interim Board of Directors for Denel SOC
PRETORIA – In the 2018 State of the Nation Address (SONA), President Cyril Ramaphosa called for immediate action in a number of State Owned Companies that are experiencing “severe” governance and financial problems.
The President made the commitment that: “We will intervene decisively to stabilize and revitalise state owned enterprises. The recent action we have taken at Eskom to strengthen governance, root out corruption and restore its financial position is just the beginning…”
With the 2018 SONA, President Ramaphosa thus enjoins us to—
- strengthen governance, root out corruption and restore the financial position of SOC’s;
- ensure state owned companies fulfil their economic and developmental mandates;
- address the challenges at SOC’s which are structural – they do not have a sufficient revenue stream to fund their operational costs;
- review the funding models of SOC’s in consultation with stakeholders – they cannot borrow their way out of their financial difficulties;
- change the way that boards are appointed so that people with appropriate expertise, experience and integrity serve in these vital positions; and
- remove board members from any role in procurement, and work with the Auditor-General to strengthen external audit processes.
A number of SOC’s have large government guarantees and their long-term viability is a concern. Capital markets have reduced lending to some because of serious governance concerns and the lack of credible reforms to boards and executive management.
The challenge in South Africa is that the State as shareholder in SOC’s, has never fully applied the levers at its disposal in terms of the Companies Act, to hold directors of SOC boards fully liable for their actions.
For government Denel is a strategic national asset – for national security and for technology- and economic development. Denel alone constitutes over 45% to the local defence industry and sources approximately 70% of input from local suppliers.
Today I have started the process of consultation with Denel’s key stakeholders. I met with organised labour and a variety of Denel’s suppliers to hear their suggestions on how to correct what is wrong. Between 2010 and 2016 Denel experienced phenomenal growth, averaging over 15% per annum, with revenue growing from just over R3 billion to over R8 billion in 2016. The company was winning significant export contracts and the order book peaked at R30 billion.
The capital market was also responsive and ready to support the growth as evidenced by the over-subscription on Denel commercial paper in the 2015/16 fiscal year and AAA Fitch Ratings.
This positive storyline has deteriorated significantly because of bad decisions. The Denel Asia saga in 2016 deeply tarnished the Denel brand. The insistence by the previous Board to proceed with the venture, despite evidence showing it was a bad strategic move. Denel now faces the real threat of collapse unless far-reaching decisions are taken urgently.
I have decided to appoint an interim Board of directors to steer Denel onto a new path. The new interim Board will be required to move with speedy on some of the areas that need urgent attention. The new Members of the interim Board of Directors are:
- Ms Monhla Hlahla – Chairperson of the board
Ms Hlahla is a former CEO of ACSA. She has been Non-executive at Exxaro Resources Ltd. She has spent the larger part of her career in the infrastructure sector, starting in 1994 at the Development Bank of Southern Africa, which later seconded her to the municipal infrastructure investment unit. She was then appointed as Non-Executive Chair of Johannesburg Water utility and later as Managing Director of Airports Company South Africa.
- Mr Zoli Kunene
Founded Kunene Bros. Holdings (pty) Ltd. and serves as its Chief Executive Officer. Has served on the Board of Denel SOC Limited previously. Has served as the Chairman of Saab Grintek (Pty) Ltd. From 1980 to 1984, he served as legal unit co-ordinator for the Council of Unions of SA (CUSA), the forerunner of COSATU.
- Prof Tshilidzi Marwala
Was appointed as the University of Johannesburg’s second Vice-Chancellor and Principal in 2017. Has been an Independent Non-Executive Director of EOH Holdings Limited since November 22, 2006. He served as Director of SITA (Pty) Ltd. He serves as Director of the State Information Technology Agency, Statistics South Africa, the National Advisory Council of Innovation and the South African Council of Natural Scientific Professions.
- General TT Matanzima
General Matanzima is a career soldier and has served in various capacities in the SANDF, including Chief of Joint Operations and Chief of Human Resources. He was awarded with the Commander Class Medal and the Southern Cross Medal.
- Ms Gloria Serobe
Founding Member and Executive Director of WIPHOLD. Ms. Serobe serves as Chief Executive Officer of Wipcapital and serves on several Boards including Sasol Mining, Hans Merensky and Old Mutual Emerging Markets. Ms. Serobe has been the Chairman of Adcorp Holdings Limited since July 11, 2017.
- Ms Talib Sadik
Mr Mahomed Talib Sadik, CA (SA) has been Chief Financial Officer and Executive Director of Basil Read Limited since October 1, 2016. Mr. Sadik served as the Chief Financial Officer and Finance Director at Basil Read Holding Limited since October 1, 2016. He served as the Group Financial Director of Times Media Limited, De Beers Group Services and Denel SOC Ltd. He has been the Executive Director of Basil Read Holding Limited since October 1, 2016. He is a chartered accountant. He holds a B.Com from The University of KwaZulu-Natal.
- Ms Sue Rabkin
A former Special Advisor to the Minister of Defence. She has a distinguished, long-standing history as a political activist.
- Dr Sibusiso Sibisi
Dr. Sibusiso Patrick Sibisi is head of Wits Business School (WBS) from January 2018. He served as the President and Chief Executive Officer of The Council for Scientific and Industrial Research. Dr. Sibisi served as the President and Chief executive officer of Council for Scientific and Industrial Research (CSIR) since 2002.
Carolus is Chairperson of Peotona Holdings, an investment holding company. She previously served as Chairperson of SAA, SANParks and CEO of SATOUR. She is a former South African High Commissioner to London.
- Ms Nonzukiso Siyotula
Ms. Nonzukiso Siyotula, has been Independent Non-Executive Director at Growthpoint Properties Ltd. since January 1, 2018. Ms. Siyotula served as the Chief Executive Officer of Thebe Capital of Thebe Investment Corporation (Pty) Ltd. from 2014 to 2016. Ms. Siyotula held various senior positions in Barclays Africa Group, Old Mutual Retail Mass, Royal Bafokeng Holdings and South African Breweries including Chief Financial Officer for Wealth Management and Chief Operating Officer for Africa Finance. Ms. Siyotula has professional experience in areas such as finance, corporate governance, strategy, restructuring, investment management, business development, sales and distribution.
- Mr Thami Magazi
Has been Acting Chief of Medium Business at Business Connexion Group Limited since 2016. Holds a Bachelor of Science in Business Administration and Masters in Business Administration. He holds Disney Institute Leadership Excellence Program, GIBS Executive Leadership Development Program, University of North Carolina Executive Development Program and Strategic Account Management Program.
- Mr Martin Mnisi
Qualified lawyer and Director at MNS – Mncedise Ndlovu & Sedumedi Inc. Former lecturer of business law and mercantile law at the University of Johannesburg. Was part of the advisory panel at the Department of Justice and Constitutional Development.
The immediate priorities for the new interim Board will be:
- to restore sound corporate governance;
- to review the effectiveness of the management team;
- to review major contracts;
- to review the company’s financial position with the view to creating sustainability; and
- to consult all stakeholders
One of the most important relationships for Denel is with the Department of Defence (DOD). We will take further steps to understand the DoD’s needs and be responsive to them. In the coming weeks I will be reviewing the composition of Boards at other SOC’s under the authority of the Department of Public Enterprises as well as the executive management teams to ensure that SOC’s are set on a new path.
We can no longer afford to delay these decisions.
OUTA welcomes Minister of Public Enterprises Pravin Gordhan’s replacement of the Denel board and promise to hold wrongdoers accountable and “follow the money”. The new board must still be approved by the Cabinet.
“At last decisive action is taking place, after the country begged the previous Minister, Lynne Brown, to appoint competent, dedicated and incorruptible directors at the SOEs,” says Rudie Heyneke, OUTA Portfolio Manager for Transport.
“The new Denel board follows the appointment of a new Eskom board in January 2018 and shows that the Executive is busy with a clean-up operation at SOEs.
“We look forward to seeing the same decisive action at other SOEs that were captured and have been used as vehicles to syphon off state funds like SAA, Transnet and PRASA. Instead of being drivers of the economy and helping creating employment, under the shadow of state capture and the Guptas these entities were a drain on our economy and created a crisis that will take many years to eradicate.”
OUTA wants the boards which presided over corruption and failure at SOEs removed, replaced with trustworthy boards, with competent and technically sound individuals.
We hope that the new Denel board will review the business processes, focus areas and the key individuals in the organisation. This organisation may need some major surgery after the effects of the Guptas are exposed and analysed.
Under Minister Brown and the outgoing board, Denel’s debt was a staggering R3.265 billion by the end of the 2016/17 financial year and, in December, it needed an emergency government loan guarantee of R580 million to pay its 4 000 employees and suppliers.
In September, five of the 10 outgoing board members resigned. On 2 March, that board’s chairman, Daniel Mantsha, resigned days before he was due to meet Minister Pravin Gordhan.
Mantsha’s resignation coincided with the change of guard in the Presidency and the Public Enterprises Ministry.
“If he thought this will bring him respite, we have some bad news: he will not escape justice. OUTA will ensure that he has his day in court, next to people such as Lynn Brown and her director general Richard Seleke,” says Heyneke.
OUTA provided former Minister Brown with evidence of Mantsha’s misdeeds, corruption and involvement with the Gupta family, but she preferred to turn a blind eye and not act. OUTA laid a complaint at the Law Society of the Northern Provinces against Mantsha for unethical and unprofessional behaviour, which is being investigated.
OUTA laid charges of corruption against Mantsha on 30 August 2017. OUTA is in contact with the Hawks and we believe this case is making progress.
OUTA calls on the new Denel board to investigate the activities of the old guard at Denel, including:
- Former chairperson Mantsha, who was central to allegations of state capture at Denel;
- Ousted board member Nkopane “Sparks” Motseki, who received financial aid for the MKMVA from the Guptas, received a significant stake in the Guptas’ Shiva Uranium mine in 2010, and was the only board member kept on for “continuity” by former Minister Brown in 2015;
- Stephan Burger, the former CEO of Denel Land Systems, who resigned on 29 March 2018, was intimately involved with the Denel/Denel Asia deal and reportedly visited Saxonwold and was involved with Salim Essa’s company, VR Laser;
- Zwelakhe Ntshepe, the current CEO, over his role as one of the key decision-makers in the Denel/Denel Asia deal;
- Ntshepe and CFO Odwa Mhlwana, over the alleged financial mismanagement and misrepresentation of financial information leading to a loss of around R600 million;
- The suspension and ultimately firing of former Denel CEO Riaz Saloojee, and the suspension of former CFO Elizabeth Africa and former company secretary Fikile Mhlonto and for unspecified reasons just two months after the outgoing board was appointed in July 2015 by former Minister Brown, as this has largely been regarded as an attempt to clear out any opposition to state capture;
- The reasons for the withdrawal of the Dentons forensic investigation report into the conduct of the suspended executives. The findings of this report and the reasons for the report’s withdrawal should be made public;
- The Denel order book, particularly cases where contracts cannot proceed because of a lack of financial guarantees from Denel.
“It is sad that people entrusted to safeguard state assets actively worked to destroy them. We can only hope that their departure does not equate to evading prosecution,” says Heyneke.
Denel had a reputation as a leader in the defence industry but lost its lustre when individuals in key positions were “captured” and chose to serve their corruptors rather than our country. OUTA hopes much of this wrongdoing will be uncovered in the state capture inquiry.
“We wish the new Board all the best with their important task of turning Denel around,” says Heyneke.
- OUTA is a proudly South African non-profit civil action organisation, comprising of and supported by people who are passionate about holding government accountable and improving the prosperity of South Africa.