More than half a billion rand, largely from state funders, has been squandered on an ill-conceived project to disassemble a Turkish pot factory, ship the parts to South Africa and rebuild it in KwaZulu-Natal.
Today, at least three damning forensic reports and two court cases later, the Industrial Development Corporation has taken the unprecedented step of blacklisting a fellow development finance institution and is suing to get back a R36-million loan. It is counting its luck that a further R60-million debt facility it agreed to in late 2018 was never drawn down.
To fund their plan they went door to door for development finance, trying the National Empowerment Fund and the Public Investment Corporation without success. Then in July 2015, they knocked at the door of the Growth Fund where they were received with open arms. Included in the Patel court papers was a “teaser” presentation prepared for them and signed off by the Growth Fund’s Ranchhod in May 2016, pitching the Insa project.
Shree Property Holdings was commissioned to build custom-made premises at Shakaskraal, a small town 75km north of Durban, for a price of R230-million. The local KwaDukuza municipality, which stood to benefit from a major source of employment within its territory, gave funding and rebates worth over R80-million.
As for the Turks, they have been accused by Brand and the Growth Fund’s former executive Shabane of ripping off the South African investors but also sabotaging the project when their further demands were not met. Cicekci claims the offtake deal was invalidated when Insa failed to start production on time. A new deal was allegedly rejected because the Insa board wanted to find a route to market that cut out IKRA as well as Van Zyl, who had been at loggerheads with Ndlovu.
Sono says that he initially thought the company needed only working capital and it would then be possible to “commence trade and to supply sufficient product to render the business profitable… [but] my subsequent investigation of the business model… has shown otherwiseWhen Sono held a first meeting of creditors they expressed shock at the level of debt accumulated by the company in a very short space of time: “I was equally puzzled at the amounts spent, although at that point my investigations...
According to O’Neill, there is also Shree Properties’ “water-tight” 10-year lease deal with Insa worth more than R200-million. It is unclear how Shree will try to recover this amount. “As head of an organisation you have to place reliance on your executives and senior investment officers who are experts in their field. They [Shabane and Ranchhod] did an extensive due diligence and appointed an expert engineer to get a valuation done. At no given point in time was I given any reason to doubt either the valuation of the plant or the viability of the project as a whole.
There were, however, red flags. An attempt was made to establish whether IKRA would be able to afford the offtake agreement it had committed to . For this the Growth Fund asked for annual financial statements and a list of IKRA’s supposed customers – a very fundamental basis for evaluating the transaction.
The declaration listed sales per year, which had grown to 3.9 million units in 2014 before dropping to three million in 2015. This was nonetheless deemed satisfactory. The additional “rent” was levied in terms of a signed agreement that stipulated the timeframes for relocating the factory, he said. “From 2016 [to the] end of 2017, I was in Africa many times to work on the project and was willing to bring staff to Africa, Unfortunately [the] factory… was not completed by the contractor at [that] time.”
He echoed Cicekci’s version that the reduction of the purchase price was to fund the Turks’ shareholding and ensure their continued involvement, to save the deal. This is an internal blacklist that disqualifies a company from funding by the IDC if anyone named on the list is involved “in any way” in that company. The disqualification lasts for 10 years.
All this for pots without insulated handles...