State capture: BNP defends decision to slap SAA with cancellation fee

28 June 2019 - 15:03 By Amil Umraw
BNP Capital stood to earn R2.6m for its advisory services and more than R200m to arrange R15bn for SAA. But the deal was scrapped after legal action by civil organisation Outa.
BNP Capital stood to earn R2.6m for its advisory services and more than R200m to arrange R15bn for SAA. But the deal was scrapped after legal action by civil organisation Outa.
Image: SAA

BNP Capital director Daniel Mahlangu has stood by his company's 2016 decision to slap SA Airways (SAA) with a massive cancellation fee should the airline terminate the contract between them.

BNP stood to gain more than R50m had the cancellation fee come into effect.

Testifying at the state capture inquiry on Friday, Mahlangu provided long-winded answers to questions from the commission's evidence leader, Kate Hofemyr, who was probing why BNP proposed a cancellation fee for work done on the day it was handed a multimillion-rand contract by SAA.

BNP’s 2016 contract with the airline was initially for transaction advisory services relating to the airline’s sourcing of R15bn it needed for a capital restructuring project. However, BNP’s mandate was later extended, providing that the company also source the funds for SAA.

The financier stood to earn R2.6m for its advisory services and more than R200m to arrange the R15bn capital SAA needed. But the deal was scrapped after media reports and subsequent legal action taken by civil organisation Outa.

The commission previously heard that on the same day BNP was awarded work to source funds ( May 25 2016), it penned a letter to SAA proposing a cancellation fee of 50% of all its fee proposals to that point should there be a termination of the contract. 

It based the proposal on two factors.

First, that the company it would be sourcing SAA's R15bn capital from, Grissag, had already furnished BNP with proof of funds and, therefore, failure by SAA to utilise those funds would warrant a cancellation fee. BNP also wrote that in the absence of a cancellation fee, it would have worked and delivered on its mandate but received no remuneration.

Hofmeyr asked why BNP motivated for a cancellation fee for work done on the very same day it received its mandate from SAA. She questioned whether the airline would be liable for the cancellation fee had it cancelled the deal two days after the contract was given to BNP.

"The success fee was discussed on May 12, before the letter of award was presented to us. As time progressed, come the 25th of May, when we were given a letter of appointment, it was actually then we realised that the only thing we haven’t touched, which is absolutely critical, was a cancellation fee. The only thing which was the biggest risk in our business was that cancellation fee," Mahlangu responded.

But in letters addressed to SAA, BNP tried to justify the cancellation fee by claiming Grissag had incurred costs in the transaction.

The commission previously heard evidence from Grissag's director, Pieter van der Merwe, who said this was not true.

"There was no intention by Grissag to seek financial relief from BNP Capital," he told the commission.


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