Tshwane’s botched bond debacle
08 July 2012 | MALCOLM REES
The Democratic Alliance (DA) alleges Tshwane has breached, or was following a path that would lead to a breach, of sections of the Municipal Financial Management Act (MFMA).
Tshwane in turn has accused the DA of sabotaging its bond by feeding mis-informed allegations of irregularity to the JSE.
Tshwane also contends the JSE is burying the truth around events leading to the postponement “to save face” claiming that it had imposed “additional requirements” on Tshwane just prior to the listing.
Tshwane adds that the JSE had succumbed to the political influence of the DA, undermining the confidence future issuers would have in the exchange.
The JSE tells a very different story and flatly denies Tshwane's claims of “additional requirements” being imposed saying that it would not be swayed by political influence.
Standard Bank, the lead arranger on the bond and the effective middleman between the JSE and Tshwane, has refused to comment on the matter stating “client confidentiality”.
This is in spite of the fact Tshwane’s City Manager, in the presence of this journalist, instructed Standard Bank to divulge information relevant to this investigation.
If the DA’s allegations hold, Tshwane has by now secured an illegal loan from Standard Bank and the Development Bank of SA.
The DA claimed that Tshwane was going to use the bond, a form of long-term funding, to pay-off short-term debt, which is illegal.
Tshwane has since secured alternative long-term funding, prior to the end of its financial year, which would have been used in the same manner as the bond.
This loan would implicate Standard Bank which may then also be accused of failing to properly monitor the due diligence of its client leading up to the bond issuance.
If the JSE’s account holds then Tshwane’s top brass may be accused of financial negligence and of repeatedly lying to investors, the media and, most strikingly, its own council.
If Tshwane’s allegations hold then the JSE has pandered to political influence in de-railing a bond listing which will have notable implications for investor confidence in the exchange.
The DA, in turn, could be accused of sabotaging a notably important bond listing for political ends.
If Standard Bank spoke up, all of this could be cleared. However, it has repeatedly refused to respond to CitiBusiness’s queries.
A rapid demise
On June 28, two days before its financial year end, the City of Tshwane announced that it had postponed its inaugural R1.5bn bond on “the eve of its listing” and following nearly a year of preparation.
The decision plunged one of SA’s largest metros into financial disarray.
Documents presented to Tshwane’s council on Friday June 29 showed that it was seeking an emergency R1bn loan, jointly funded by Standard Bank and the Development Bank of South Africa, in order rectify “unacceptable risks on the CoT’s cash flow resources,” directly resulting from the postponement.
CitiBusiness is aware the JSE was “investigating” allegations of illegality brought to it by the DA on Monday June 25, just prior to the announcement.
The DA had claimed that Tshwane was going to breach sections of the Municipal Financial Management Act by using the proceeds of the bond to pay off short-term debt.
However, precisely what occurred between the 25th and 28th remains unclear.
Tshwane’s City Manager, Jason Ngobeni and its CFO, Andile Dyakala, are up in arms.
In an extensive two-hour interview with CitiBusiness last week Tuesday, the pair accused the DA of sabotaging their bond by bringing false accusations to the JSE just days before the listing date.
The timing of the DA’s complaint, they claim, is curious.
They accuse the JSE of pandering to political influence by imposing additional requirements on the listing based on inaccurate interpretations of the law, without attempting to secure third party verification and without giving Tshwane an opportunity to defend itself against those allegations.
Tshwane, in discussions with CitiBusiness last week, in the documents presented to council authored by Dyakala and in last weeks interview, have claimed that the JSE had, at the last minute, extended the settlement period for the bond from the industry termed T+3 to a T+5 repayment window.
In practice this would mean that instead of getting the proceeds from the bond three days after the initial trade date (T) it would receive them five days later, two days after its year end of June 30.
Ngobeni said that this last minute change was an additional requirement. “The right question is this: ‘why was it trade plus five for Tshwane when it was trade plus three for everyone else (the industry norm)? …’
“In our view they did it to consider whatever objections had been made to the JSE…
“I don’t think they knew the implication (of this for Tshwane); that’s why all they can do now is to deny. Right now it’s everyone saving face.
“We still maintain that the inability of the City to issue the bonds on the times that we have planned for was because of the JSE changing its requirements for the City of Tshwane. Period.”
The JSE, however, tells a completely different version of events.
“Categorically we deny that we have imposed any more requirements on them,” said John Burke, director for issuer services at the JSE.
“The only thing extra I wanted from them, is to make certain they are authorised to do this issue.”
According to Burke, Standard Bank and Tshwane had offered, following the DA’s presentation and not at the request of the JSE, to provide a legal opinion clearing the metro of any potential breaches of the law.
This did not arrive.
Nor did a resolution from the individuals in a position to authorise the bond as per prescribed listing requirements.
Regarding Tshwane’s claims that the settlement period was extended, the JSE has absolutely and repeatedly denied imposing an extension.
“We did absolutely not extend the settlement period. We don’t have the authority to extend the settlement period,” it said.
“That’s the long and the short of it, it comes from me and I am not good with lying. So, somebody somewhere along the line is lying to you,” he said.
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