Major South African bank to pay Transnet R600 million to settle legal dispute

Nedbank has agreed to pay Transnet R600 million as part of a confidential settlement, ending litigation over a matter that started more than a decade ago.

The matter centres around the financing for Transnet’s 1064 project, which started in March 2012. 

The state-owned utility wanted to buy 1,064 locomotives for freight trains, with 465 of them diesel and 599 electric locomotives. By April 2013, the project was expected to cost R38.6 billion.

Contracts were signed in March 2014, and Transnet immediately made an upfront payment of R7.37 billion. In May 2014, weeks after signing, the costs were revised, increasing to R54.5 billion.

Transnet’s 2018/19 Annual Report said that by March 2019, the cumulative expenditure incurred on the 1,064 locomotive contract amounted to R33.6 billion, with R3.9 billion invested in that year.

Nedbank became involved in this matter because the bank lent money to Transnet for its 1064 project.

Nedbank was part of a “loan club” comprising various banks and financial services companies that raised an estimated R12 billion for the project.

Initially, the parties agreed to a variable interest rate for the loan, which means the rate would fluctuate with the market.

However, shortly after, a Gupta-linked company intervened and negotiated a shift to a significantly higher fixed interest rate.

Some claim that if the rate were kept variable, Transnet would have saved R2.8 billion in interest by now, as the contract was for a 15-year period.

This led Transnet to allege that Nedbank and Moss Brickman – one of the bank’s dealers at the time – unduly profited R2.8 billion from these transactions.

Transnet versus Nedbank

During the Zondo Commission of Inquiry into State Capture in 2019, City Press ran an article claiming that Nedbank had “pocketed” R780 million from Transnet.

However, Nedbank vehemently denied these claims, saying in a 2019 press release that it did not “pocket” R780 million, as suggested by City Press.

“It is important to note that the figure did not accrue to Nedbank,” the bank said, adding that participating in the financing arrangements and subsequent hedging is hardly unusual and merely standard industry practice.

“No adverse conclusion can thus be drawn from Nedbank’s participation in both the lending and interest rate swap arrangements,” it said.

Ultimately, the Zondo Commission did not explicitly implicate Nedbank in wrongdoing. However, it raised serious concerns about the bank’s role in certain deals and encouraged further investigation.

In 2024, Nedbank said it had participated in an unsuccessful mediation process with Transnet regarding the interest rate swap arrangements.

The bank said it could not agree to any settlement on terms that would allow it to be “portrayed as a participant in any corruption that it was not and could not have been aware of at the time”.

“Nedbank will not be held liable for any governance failures at Transnet, and Nedbank will strongly defend any litigation against it,” it said.

In mid-2024, Transnet and the Special Investigating Unit (SIU) announced that they had jointly instituted proceedings against Nedbank, approaching the Johannesburg High Court to set aside the interest rate swap transactions.

“Transnet and the SIU are of the view that the interest rate swaps are void and unenforceable under the Public Finance Management Act, alternatively contravene section 217 of the Constitution and are contrary to public policy,” the organisations said.

“There is sufficient basis for the sought relief, and Nedbank must account for its involvement and conduct in the swap transactions.”

Nedbank, in turn, said it was confident that its actions in this matter were above board, and that the interest rate swaps were commercially sound.

On Tuesday, 25 November, Nedbank informed shareholders that it has agreed to a confidential commercial settlement of its litigation with Transnet.

“The settlement is made without admission of liability and in the interest of avoiding lengthy and costly litigation and damage to their ongoing relationship,” the bank said.

Nedbank said it stood by its previous statements regarding the matter, adding that this settlement will allow the bank to continue its long-standing business relationship with Transnet.

The bank revealed that it agreed to pay Transnet R600 million, again emphasising that this payment is made without admission of liability and in full and final settlement of the dispute.