Denel board confirms suspended chief executive will not return

The Denel board of directors, appointed by Public Enterprises Minister Lynne Brown last September, has broken its silence over issues apparently affecting the State-owned defence industry conglomerate. These include the suspension of the chief executive and two other senior officials, the establishment of Denel Asia based in Hong Kong and a steel cutting and fabrication contract with a company linked to the Gupta family. The Denel board said, in a weekend statement which is attributed to it and not board chairman Daniel Mantsha, it was issued to “protect the integrity and reputation” of both the board and the company. “It (the statement) is not an attempt by Denel and its board to communicate with government through the media but it is important to set the public record straight.” Suspended chief executive Riaz Saloojee will not be returning to Denel. According to the statement “his contractual obligation to Denel was terminated as his contract was about to expire”.

Disciplinary action is proceeding against chief financial officer Fikile Mhlontlo and group company secretary Elizabeth Africa. Natasha Mazzone, the opposition Democratic Alliance (DA) party shadow public enterprises minister, maintains the dismissal of Saloojee is “suspicious and lends credence to the notion that he refused to broker arms deals with the politically connected Gupta family”. Mazzone said it was “widely speculated” the suspension of the three related to the creation of a new company – Denel Asia – and its link to the Guptas. Denel in its statement said that, “The decision to suspend these executives was taken to allow for the unfettered investigation to address concerns the board had raised regarding Denel's acquisition of BAE Land Systems South Africa (LSSA). What is distinct about this transaction from others, are the facts that transpired subsequent to the granting of board and shareholder approval. The preliminary assessment conducted by the board during implementation of the transaction highlighted serious areas that required detailed investigation. “The board previously refrained from commenting in detail on the matter, given the nature of the disciplinary process. However, given the degree of misrepresentation and misreporting over the past few days, the following points now need to be made: “The assessment undertaken by the board is a normal process required in the ordinary monitoring of transactions as part of its oversight and fiduciary duties. This was not aimed at purging any of the executives or employees of the company but to solicit a clearer understanding of the transaction from the executive who was part of the decision-making process then and privy to the rationale presented to the former board. “It is unfortunate that what was intended to be an internal company matter became a subject of media and public speculation -- casting serious aspersions on our motive as the board. “At the core of the allegations against these officials is the fact that the funding model that was approved for the BAE LSSA transaction was not implemented in that form and BAE LSSA’s liquidity was misrepresented,” the statement said. However, earlier this month Public Enterprises Minister Lynne Brown said Saloojee, Mhlontlo and Africa were being investigated into irregularities in the state-owned company’s profit statement and not the LSSA deal. Denel addressed another issue in its statement, that the establishment of Denel Asia did not have Treasury approval. Finance Minister, Pravin Gordhan, stated this month that the registration of Denel Asia was illegal and contrary to the Public Finance Management Act (PFMA). Denel has, according to the board statement, established many cross border companies and concluded partnerships with foreign entities before which means the Denel Asia joint venture is not the first transaction of this scale and magnitude in Denel’s history. “Certainly, there will be more in the future,” the statement said adding the success of the current turnaround strategy at Denel was premised on the formation of associate companies with international companies such as Turbomeca, Airbus Optronics and Rheinmetall among others. “This strategy was adopted by previous Denel boards and has been in implementation since 2005. These partnerships contributed to the successful business turnaround and sustainability of the company, evidenced by an order book of more than R20 billion. “The Denel Asia transaction was considered in furtherance of this strategy and the process to form the joint venture commenced before the current board came to office. Further, it is important to highlight the fact that in the past, Denel suffered serious business and reputation damage as a result of its marketing strategy which allowed for appointment of ‘agents’ in foreign jurisdiction. The decision to consider joint ventures was also to minimise the business risks associated with ‘agents’ in some of the countries identified for business expansion. “ VR Laser, the Ekurhuleni-based company associated with VR Laser Asia, has “been doing business with Denel for more than a decade” and the statement maintains it is incorrect to state the current Denel board of directors “brought the Gupta family into Denel, particularly as the family has no business interest in VR Laser Asia. In January Denel announced it was creating Denel Asia, a joint venture company in Hong Kong in partnership with VR Laser, which is partially controlled by the Gupta family. Allegations subsequently emerged that Saloojee was removed to make way for joint venture. VR Laser South Africa is doing steel cutting and fabrication for Denel Land Systems (DLS) as part of the overall Hoefyster Project, the new infantry fighting vehicle for the SA Army. The total value of the project is R12.7 billion with VR Laser’s component making up R400 million of this. “There is nothing wrong with doing business with any registered, legally trading business in South Africa, whether the Gupta family or any other,” the Denel board statement said. The statement does not address or give any details of briefings to Minister Brown apart from stating “the board will continue to engage with all affected stakeholders, in particular the Minister of Public Enterprises, to ensure continuing oversight and support to the company and its leadership”. Brown expects the investigation into the suspension of Saloojee, Mhlontlo and Africa to be completed by the end of June, more than six months later than planned.