Too Slick Operators

Leverage is what they call it when political connections win you that government contract. But leverage in South Africa isn’t necessarily leverage elsewhere, as Sahara Group bosses Atul and Rajesh Gupta discovered when their over-hasty name-dropping and careless use of company names lost them their bid for a lucrative oil concession in Angola.

It has also resulted in a group of Angolan war veterans obtaining a default judgment for R50m against a company wholly owned by the Guptas. The Angolan veterans were their partners in the failed oil concession bid.

The Guptas, who emigrated from India to South Africa in 1993, are best known as the power behind computer marketer Sahara, but are nearly as well known for their claimed close friendships in high places. They talk of regular visits to the Mbekis as well as regularly flying Jacob Zuma in their private jet to his campaign engagements. They recruited Tokyo Sexwale’s Mvelaphanda and Lazarus Zim’s Afripalm to, jointly, become their 27% BEE partners in Sahara Holdings. In exchange the Gupta family trust, the Oakbay Trust, has acquired a substantial stake in Zim’s companies (30% of Afripalm Holdings and 21% of Afripalm Resources.)

Afripalm Resources, in turn, acquired a controlling interest in Mvelaphanda Resources, reinforcing the Sexwale connection. As the blurb on Unipalm Holdings’ website declares: “This truly momentous transaction, valued at over R1bn, demonstrates the ability of BEE companies to work together.” Unipalm and – only indirectly – the Guptas could now claim to be “exposed to the gold, diamond and platinum sectors”.

In late 2006, when the Angolans advertised for bids for an oil concession, the Guptas saw an opportunity to join the rush into Africa. In the process they hoped to capitalise on the BEE connections they’d recently established in South Africa.

In their bid presentation to the Angolan oil agency, Sonangol, they waxed lyrical about Oakbay’s connection to companies such as TransHex, Goldfields, Northam and Anglo Plats. These are, in fact, all the assets of Mvelaphanda Resources, in which the Oakbay Trust – not the company making the bid, Oakbay Investments Pty Ltd – has only an indirect, diluted stake.

The presentation creates the misleading impression that Oakbay’s connection is hands-on. Of TransHex, for example, it is stated: “The TransHex Group is a world leader in exploration, mining and marketing of ... alluvial diamonds ... Our Strategic expansion into Angola is beginning to show results ...”

Then they went a little too far: they also claimed – inter alia in a curious “behind-the-scenes” letter to Angola’s President – to have secured the financial backing of Reliance Industries Ltd, India’s largest oil and resource company. Unfortunately for the Guptas, the Angolans checked with Reliance, to be told that the Indian oil company knew nothing about the Angolan bid.

The fiasco has cost the Guptas’ Angolan partners dearly: their bid partnership (with the Gupta’s Oakbay Investments Pty Ltd) has led to Utima Resources Ltd being blacklisted from any future Angolan government contracts.

It’s a terrible irony that Utima was originally set up with the support of the Angolan government, to enable war veterans to participate in the exploitation of the country’s resources.

Utima lacked the experience to make their own bid – an Utima executive tells noseweek: “We didn’t have the background to get involved in oil exploration. The Guptas, through Oakbay Investments, promised us the resources and expertise.”

Having picked the right local partner, the Guptas also threw in the names of their South African BEE partners to strengthen their hand.

Oakbay Investments was registered in June 2006. While courting for Angolan oil, the company was represented by MD Jagdish Parekh. Parekh effectively functions as the Sahara group’s head of operations. He is also the CEO of Sahara subsidiary, Westdawn Investments, that trades as JIC Mining Services.

The Guptas were, of course, relying on the veterans to increase their leverage with the Angolan political leadership. President Eduardo dos Santos’ personal assistant, Ambassador Luis Kiambata, happens to be president of the war veterans’ group for whom the company Utima was established.

On his visits to Angola, Parekh was apparently vocal about the need “to beat the Western multinationals who want to steal African resources”.

Utima CEO Stan Muntanga says that Parekh told them that President Mbeki could regularly be seen “driving from the Guptas’ Cape Town residence after breakfast”. (President Mbeki did meet with the Guptas when he attended the premiere of Gandhi My Father, a film co-produced by Atul Gupta – but this is the only publicly recorded association.)

It is Parekh who told the Utima executives that Oakbay had Mvelaphanda and Mumbai-based Reliance Industries on board to provide financing.

The impressive presentation was enough to convince Utima, but the letter that Parekh wrote to President dos Santos was his – and Oakbay’s – undoing. Dated 5 November 2007 (days before closing date for the bid), and written on an Oakbay letterhead but bearing Sahara’s Midrand address, it begins in suitably obsequious style: “We are honoured and appreciate the privilege afforded to us ...”

It introduces Oakbay and informs the president of its “unique strategic alliance” with Utima and its “wide constituency of Angolan war veterans”.

It is then that he claims to have harnessed the support of “one of the largest private enterprises from India”. Reliance, he tells the president, is rapidly emerging as the most dynamic company in the fields of Oil Exploration & Production”. The letter concludes: “We humbly submit our profile for due consideration ... and confirm that our executives shall be available to meet to discuss this proposal further.”

Parekh declined to return our calls, so it’s not known what Oakbay hoped to get out of a meeting with President Dos Santos.

Unfortunately for the Guptas, Parekh had misjudged the situation – Sonangol EP, charged with vetting the bids, don’t seem to care who has breakfast with whom.

A source close to the Sonangol committee tells noseweek that their suspicions were aroused when they had a look at Reliance Industries Limited’s financial statement: “Reliance Industries are so big that if they were interested, they’d have entered the bid without including a South African brief-case company.”

The tender committee called the Reliance Industries office in Mumbai, and their suspicions were confirmed – the Mumbai office had no idea what the Angolans were talking about. Utima Consortium was immediately disqualified from the bid. They were also barred from any future participation in government contracts, until they were able to offer a satisfactory explanation.

Utima CEO Muntanga called Reliance Industries and talked to Atul Chandra, who insisted that they were not aware of their inclusion in the Oakbay bid.

In a later email Chandra declared: “I feel very sorry for all inconvenience caused by actions of some people who do not understand oil exploration business. We had no idea about the quality of project and with whom we are dealing. You would agree for a company like RIL detailed information of partners is necessary. Basic problem is that someone had a last minute thought to use RIL for this opportunity.”

Chandra was of course unaware that this was no “last minute thought” – Parekh had been talking for nearly a year about Reliance’s involvement. Says Muntanga: “We shouldn’t have trusted this group the way we did. But when they told us that Mvelaphanda were in partnership, and how connected to the business and political worlds they were, we simply took their word. Now we are paying dearly.”

A memorandum of understanding was signed between Utima and Oakbay Investments, in which Oakbay undertook to reimburse Utima for expenses totalling about $1.15m. Another $5m would be paid to Utima if the bid succeeded.

In an attempt to clear their names and cover their losses, Utima Resources, through their Johannesburg attorneys, Tanya Brenner, sent a letter of demand for nearly R50m to Oakbay Investments, but there was no response.

The Angolans then issued summons out of the Johannesburg High Court. Oakbay failed to defend the action, and Judge Willis awarded Utima default judgment for R53m, with interest. The sheriff has since informed Utima that Oakbay intend applying to have the judgment set aside.

In response to questions we addressed to the Gupta brothers, attorney Abdul Jaffer called to say that he represents Oakbay Investments.

What had Oakbay hoped to gain by writing to President Dos Santos? we asked. “That was a private matter,” Jaffer retorted, “there was absolutely nothing wrong with the letter being written and sent to the president.”

Jaffer confirmed that Oakbay will soon be filing affidavits challenging the judgment against them.

[See follow-up story in nose111.]

Three brothers
Moneyweb described them as “the three shrewd yet humble thirty-something brothers – Ajay, Atul and Tony Gupta.” That was in 2005. DTI lists the Guptas as Anil (45), Atul (40), Rajesh (36). Only Atul and Rajesh are listed as trustees of the family trust.
The three brothers, born in the northern Indian town of Saharanpur, in the state of Uttar Pradesh, arrived in South Africa in 1993. Besides their huge business interests, the Guptas enjoy cricket, movies and A1 racing: They own the naming rights to Newlands stadium (Sahara Park); Atul and Anil co-produced the movie Gandhi My Father, which premiered in South Africa in July 2007; and they are the owners of India’s A1 motor racing team.
Atul Gupta apparently boasts that he regularly lends his private jet to Jacob Zuma, to fly him around the country.

Oakbay Trust
Oakbay Investments
Lazarus Zim
Afripalm Holdings
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Submitted by : Harri Narismulu of Hillary on 2008-07-09 21:07:01
This is endemic of the johnny-come-latelys that dominate the business scene. They have been sponsored by the apparatchiks in the Presidency whoi they regularly schmooze with with wine, women and song - even if the Prez's dog is a part-time Muslim.
Submitted by : E Steiner of sandton on 2008-07-01 00:17:41
I wonder how zoomie will reward these money hungry 'business men'. But do not worry people, zoomie and indian business men are like bradas, just ask shaky shake
Submitted by : Toni Goncalves of Johannesburg on 2008-06-25 16:07:59
I would not boast about giving stuff to Jacob Zuma.......


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