THE board of South African Airways (SAA) has
appointed an unknown "boutique financier" to advise it on the
restructuring of its R15bn debt and to raise the funding, in return for a
R256m success fee.
Johannesburg-based BnP Capital was first appointed transaction adviser in March ahead of several other bidders, including Nedbank and Deloitte.
Then in May it was awarded the contract to urgently raise the finance itself, after a round robin resolution by the board, which waived tender procedures, despite advice from SAA’s own treasury that the service could be provided for far less.
The arrangement will see BnP Capital score a success fee of 1.5% of funds sourced plus VAT, calculated to be R256m.
SAA’s treasury had estimated, on the basis of market information, that at most transaction fees would be R85m.
Documents seen by Business Day show that between May 20 and May 27 five board members voted in favour of approving the contract on a confined basis. They include SAA chairwoman Dudu Myeni, who enjoys a close relationship with President Jacob Zuma.
Confined tenders allow state owned entities to award contracts to single bidders when it is considered impractical to follow an open bidding process due to an urgent need.
But an e-mail sent by SAA treasurer Cynthia Stimpel to interim chief financial officer Phumeza Nhantsi on May 20 said the airline would be paying at least three times more than it needed to and recommended following an open tender process.
After receiving a "hypothetical quote" from a banker at Absa, Stimpel submitted a spreadsheet with her calculations to Nhantsi.
She said she was "very uncomfortable" with the approved fee of 1.5% to be paid to BnP Capital.
"From a reputational risk perspective for SAA, the fee amount would send the wrong signals into the market, and especially our bankers," Stimpel’s e-mail said.
The documents show that BnP Capital advised SAA to urgently source funds to settle its loans, then cited the urgency as justification not to go out to tender, but appoint BnP Capital to do the job it recommended.
A confidential memo dated May 11 sent to SAA’s bid adjudication council requested support "to confine and award the contract for the sourcing of funds for the SAA group to BnP Capital".
"After an assessment of the airline’s current financial position the transaction adviser pointed out the urgent need to source funds to settle the loans that are about to mature," the memo said.
"Loans to the value of R7.3bn are maturing on June 30 2016, and SAA is obliged to settle the loans on or before the maturity date. Due to time constraints, the only feasible approach is to engage the appointed transaction adviser to urgently source the funds required to settle the loans."
The memo said SAA had negotiated a reduced success fee of 1.5% of loans sourced, compared with an industry norm of 2%-3%. If BnP Capital sourced the total R15bn SAA required, it would be paid R256.5m including VAT. "If the required funds are not secured urgently, SAA will not be able to meet its financial obligations. This has serious implications on the airline’s going concern status," the memo said. The consolidation of SAA’s debt is an urgent priority. In 2015, former SAA chief financial officer Wolf Meyer called for proposals from the banks on the debt consolidation, but the process was stopped by Myeni, who objected to the board not being involved.
On May 20 SAA’s Nhantsi sent a resolution to the board to approve the confinement and awarding of the contract. Within a week, five board members had approved the resolution, despite Stimpel’s warnings.
Curiously, internal SAA documents related to the tender show the board resolution was approved on May 24, even though two board members — Yakhe Kwinana and John Tambi — only signed their approvals through round robin on May 27.
BnP Capital CEO Daniel Mahlangu, a former Public Investment Corporation and National Empowerment Fund official, confirmed yesterday he had proposed raising funds for SAA’s outstanding debt. "We did actually propose to them to urgently raise funds, so they can focus on their core business," he said. "We would have to engage with our international partners. Local banks are reluctant to fund SAA, for obvious reasons."
His company had not signed a contract or agreed on a fee structure yet, but has received an award letter. "I’m not sure which one they settled on. We gave them a range. The success fee becomes negotiable."
He denied that SAA appointing his company to implement its own recommendation represented a conflict of interest.
"Only if you look at one in isolation it becomes a problem. You need to ask SAA about its internal procurement processes."
Mahlangu also denied allegations that his company lacked the experience and track record for the job. He described BnP Capital as a "boutique advisory firm" that was "known in the market".
He said he had been in the business for 20 years and had "done mega transactions".
"That’s our business — to raise funding."
Stimpel declined to comment, and Nhantsi and Miyeni did not respond to messages.
SAA spokesman Tlali Tlali had not responded to questions at the time of publication.
Johannesburg-based BnP Capital was first appointed transaction adviser in March ahead of several other bidders, including Nedbank and Deloitte.
Then in May it was awarded the contract to urgently raise the finance itself, after a round robin resolution by the board, which waived tender procedures, despite advice from SAA’s own treasury that the service could be provided for far less.
The arrangement will see BnP Capital score a success fee of 1.5% of funds sourced plus VAT, calculated to be R256m.
SAA’s treasury had estimated, on the basis of market information, that at most transaction fees would be R85m.
Documents seen by Business Day show that between May 20 and May 27 five board members voted in favour of approving the contract on a confined basis. They include SAA chairwoman Dudu Myeni, who enjoys a close relationship with President Jacob Zuma.
Confined tenders allow state owned entities to award contracts to single bidders when it is considered impractical to follow an open bidding process due to an urgent need.
But an e-mail sent by SAA treasurer Cynthia Stimpel to interim chief financial officer Phumeza Nhantsi on May 20 said the airline would be paying at least three times more than it needed to and recommended following an open tender process.
After receiving a "hypothetical quote" from a banker at Absa, Stimpel submitted a spreadsheet with her calculations to Nhantsi.
She said she was "very uncomfortable" with the approved fee of 1.5% to be paid to BnP Capital.
"From a reputational risk perspective for SAA, the fee amount would send the wrong signals into the market, and especially our bankers," Stimpel’s e-mail said.
The documents show that BnP Capital advised SAA to urgently source funds to settle its loans, then cited the urgency as justification not to go out to tender, but appoint BnP Capital to do the job it recommended.
A confidential memo dated May 11 sent to SAA’s bid adjudication council requested support "to confine and award the contract for the sourcing of funds for the SAA group to BnP Capital".
"After an assessment of the airline’s current financial position the transaction adviser pointed out the urgent need to source funds to settle the loans that are about to mature," the memo said.
"Loans to the value of R7.3bn are maturing on June 30 2016, and SAA is obliged to settle the loans on or before the maturity date. Due to time constraints, the only feasible approach is to engage the appointed transaction adviser to urgently source the funds required to settle the loans."
The memo said SAA had negotiated a reduced success fee of 1.5% of loans sourced, compared with an industry norm of 2%-3%. If BnP Capital sourced the total R15bn SAA required, it would be paid R256.5m including VAT. "If the required funds are not secured urgently, SAA will not be able to meet its financial obligations. This has serious implications on the airline’s going concern status," the memo said. The consolidation of SAA’s debt is an urgent priority. In 2015, former SAA chief financial officer Wolf Meyer called for proposals from the banks on the debt consolidation, but the process was stopped by Myeni, who objected to the board not being involved.
On May 20 SAA’s Nhantsi sent a resolution to the board to approve the confinement and awarding of the contract. Within a week, five board members had approved the resolution, despite Stimpel’s warnings.
Curiously, internal SAA documents related to the tender show the board resolution was approved on May 24, even though two board members — Yakhe Kwinana and John Tambi — only signed their approvals through round robin on May 27.
BnP Capital CEO Daniel Mahlangu, a former Public Investment Corporation and National Empowerment Fund official, confirmed yesterday he had proposed raising funds for SAA’s outstanding debt. "We did actually propose to them to urgently raise funds, so they can focus on their core business," he said. "We would have to engage with our international partners. Local banks are reluctant to fund SAA, for obvious reasons."
His company had not signed a contract or agreed on a fee structure yet, but has received an award letter. "I’m not sure which one they settled on. We gave them a range. The success fee becomes negotiable."
He denied that SAA appointing his company to implement its own recommendation represented a conflict of interest.
"Only if you look at one in isolation it becomes a problem. You need to ask SAA about its internal procurement processes."
Mahlangu also denied allegations that his company lacked the experience and track record for the job. He described BnP Capital as a "boutique advisory firm" that was "known in the market".
He said he had been in the business for 20 years and had "done mega transactions".
"That’s our business — to raise funding."
Stimpel declined to comment, and Nhantsi and Miyeni did not respond to messages.
SAA spokesman Tlali Tlali had not responded to questions at the time of publication.
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