Previously unreported affidavits have raised new questions about due diligence processes and a flawed business case upon which the Industrial Development Corporation (IDC) relied to provide more than R1.1 billion funding to SA Steel Mills (SASM), a steel manufacturing company based in Meyerton east of Johannesburg.
A source with knowledge of the matter told the Mail & Guardian that two suspended IDC employees are facing a disciplinary enquiry for their role in the transaction, while questions remain about accountability for senior officials linked to approvals in the transaction.
According to the source, a legal opinion commissioned by the IDC recommended sanctions against a former head of legal and regulatory compliance linked to approval of a Customer Account Management (CAM) Memo that enabled the final tranche of funding to be disbursed to SASM.
Despite the IDC making staggered disbursements to SASM over a seven year period amounting to R1.1 billion, the steel manufacturing company has since been placed in business rescue, resulting in the loss of more than 1 100 jobs.
Competing allegations of fraud and embezzlement contained in affidavits deposed by feuding parties have also raised questions about the IDC’s due diligence processes in continuing to fund SASM after the company allegedly stopped servicing its debt as far back as 2020.
In his affidavit, Ashish Verma alleges theft of funds and large scale money laundering at SA Steel Mills. The steel manufacturer faced financial difficulty over the past few years, leading to the sale of Pro Roof Industrial Park, which owns SA Steel Mills and the land on which its steel mill operates. Alfeco, led by Ahuja, acquired the business in April 2024 but subsequently withdrew from the transaction.
In a blistering attack on SASM’s previous owners, Verma names former financial director Peyush Bhana as one of the alleged masterminds behind the diversion of millions of rand from the company. At the centre of the dispute between the new and former owners is a contested R749 million shareholder contribution.
According to the affidavits, the amount was presented as shareholder loans introduced into the company and certified by auditors as part of the funding structure relied on by the IDC in approving loan facilities.
In response to questions from the Mail & Guardian, sent ahead of an extended deadline, the IDC said funding applications are assessed through “a comprehensive due diligence process” that considers “financial, commercial, governance and developmental factors, including sustainability and job creation outcomes”.
The corporation said documentation submitted by applicants, including supporting confirmations, is “evaluated alongside internal and independent analysis and governance processes” and that “funding decisions are not based on any single document in isolation”. However, the IDC did not directly answer whether it relied on the auditor’s certificate confirming the approximately R749 million shareholder contribution.
The new owners of the business claim that a review of the company’s financial records conducted after the acquisition could not trace the R749 million which previous owners claimed had been injected into the business as shareholder funding to secure additional IDC facilities. Before Ahuja and his management team took over, SASM was a family-owned business run by Rafik Mohamed.
These affidavits and supporting documents form part of a criminal complaint lodged by Alfeco Holdings with the South African Police Service in 2024, including a supplementary affidavit sworn on 6 December 2024. Together, the documents set out detailed claims about how funding conditions were allegedly met and how funds may have flowed through the transaction.
The IDC declined to comment on whether the SAPS had approached it regarding the matter, stating that “as a matter of policy, the IDC does not comment publicly on engagements with law enforcement agencies or on matters that may be subject to investigation”. It added that it “cooperates with lawful authorities when required to do so”.
SA Steel Mills concluded several loan agreements with the IDC, including a R108 million construction loan in 2017, a R356 million facility in 2017, a R245 million facility in 2019 and a R404 million working capital loan in 2022, bringing total IDC exposure to about R1.1 billion.
The new owners argue that stronger due diligence by the IDC could have halted further funding to SASM. Verma further alleges that false accounting entries may have been used to create the appearance of shareholder funding.
The affidavits describe transactions routed through entities within the historic group structure, including the use of a fair value adjustment to declare a dividend that was later treated as a shareholder contribution.
But how did IDC management continue approving funds to a company that had allegedly stopped servicing its debt for years, and why were warning signs not identified earlier?
On whether it had conducted an internal review into the transaction following concerns raised in affidavits, the IDC said it has “established governance, risk management and portfolio monitoring processes” to address challenges within its investment portfolio.
“Where a funded entity experiences distress or operational challenges, the IDC engages through appropriate mechanisms to assess and respond to those challenges,” it said.
“There is no way millions of rand could have moved outside the IDC without detection of fraud or money laundering. This whole SASM transaction was a collusion of external and internal parties including senior people within the IDC. It does not make sense that only two people have been disciplined for negligence when one of the key signatories to the transactions is now an executive. IDC investigates people and not allegations. When audit findings implicate senior managers or executives, its human capital department colludes with law firms to bury these reports. How do you harass your own investigators for doing their job,” said a source with intimate knowledge of the SASM matter.
The IDC declined to comment on whether disciplinary proceedings had been instituted against Wallace and Nyathi, saying it does not comment publicly on “internal employee or labour related matters”. It also said it does not comment publicly on “the contents of internal or external legal reviews, nor on untested or unproven allegations made outside of formal processes”.
The loans advanced to SASM were intended for defined purposes including construction of the steel mill, acquisition of plant and equipment and working capital requirements. However, a forensic report commissioned by the IDC reportedly values SASM’s steel mill, plant and equipment at just over R250 million, raising further questions about whether the company’s value was overstated, according to the source.
The new owners further allege that accounting entries were used to create the appearance of shareholder funding through transactions routed between related entities.
They claim a fair value adjustment was used to declare a dividend that was treated as a shareholder contribution.
The affidavits further allege that the dividend may not have complied with the Companies Act, citing findings by forensic auditors mandated by Alfeco and reviewed by the M&G. Further supplementary affidavits allege that subsequent reviews of the company’s accounts identified transactions involving purported debts and credits, with funds moving through related entities.
Approximately R121.5 million was allegedly linked to payments associated with Emberton Limited, a United Kingdom registered company. However, the M&G’s investigation found no clear operational link between Emberton and SASM’s steel business, raising questions about the commercial rationale for the transactions described in the affidavits.
The documents provide a more detailed picture of how the transaction was structured and how funds may have flowed through it, shifting the focus from governance concerns to the integrity of the financial representations underpinning IDC funding decisions.
Ashruf Kaka, the lawyer for Mohamed, said the matter was complicated and required a meeting to explain issues. The M&G has committed to meeting Mohamed and his lawyers next week.
The M&G approached Ian Small-Smith, the attorney representing the complainants in the criminal matter, for comment. Small-Smith declined to comment on the allegations, saying “the police and prosecutors should be left alone so that they can do their job in this matter”.
While the allegations by SASM’s new owners have yet to be tested in court, the matter raises questions about how shareholder contributions are verified in large scale development finance transactions, the reliance placed on third party audit certification and the ability of funders to track the movement of funds through corporate structures.
Previously unreported affidavits have raised serious questions about the Industrial Development Corporation’s R1.1billion funding to SA Steel Mills, including allegations of weak due diligence, disputed financial records and internal accountability failures that have left more than 1 100 jobs at risk
