Former SAA head of treasury Cynthia Stimpel told the state capture inquiry on Thursday how former chair Dudu Myeni and her board may have flouted procurement regulations when appointing a little-known company to source R15bn for the airline in 2015.

Stimpel‚ who was SAA’s acting group treasurer at the time‚ said the two options that her team recommended to the board — which were recommended after an extensive procurement process — were completely ignored.

Instead‚ the board ordered that SAA appoint the Free State Development Corporation to provide the funds for SAA’s capital restructuring project.

According to Stimpel‚ after SAA issued a request for proposal in February 2015‚ SeaCrest Investments proposed that it would lend the entire R15bn at an interest rate of 5.8%.

However‚ after a due diligence was conducted‚ SAA found that SeaCrest would not be providing the capital directly; the majority of the money would instead be supplied by a company called Grissag.

Grissag was to provide SeaCrest with the funds at a 4% interest rate‚ meaning that SeaCrest would earn the 1.8% difference in interest fees when it forwarded the money to SAA.

The second option‚ which Stimpel called safer‚ was a consolidated loan from various banks who offered SAA R4.3bn. Stimpel said SAA could have then gone out to tender for the remaining funds if this option was chosen.

An almost year-long process then followed which culminated in a board meeting on December 3 that year.

“My expectation was that the board would have either approved SeaCrest‚ or turned SeaCrest down and approved the consolidated banks‚” Stimpel said.

However‚ both were declined.

“It was really unusual for me to see this in that our first recommendation of SeaCrest was declined‚ our second recommendation of the consolidated banks was also declined. The board resolution recommended for us to go with funding from the Free State Development Corporation (FDC)‚” Stimpel told the commission.

She said the decision was made based on a letter written by FDC chief financial officer Shepherd Moyo that circulated at the meeting. It indicated that the FDC was working with a foreign entity that could offer up the money at a lower interest rate of 3% to 4%. That foreign entity was also Grissag.

The board recommended that SAA contract the FDC based on that letter alone‚ Stimpel said.

“I was extremely uncomfortable with it‚” she said.

One of the reasons the FDC was chosen‚ according to what Stimpel says she was told‚ was that the FDC was a state-owned entity and it would therefore be less risky for the airline as it would treat SAA differently in the event of a default.

The National Treasury advised that the FDC does not have the mandate to fund SAA.

Eventually‚ months later in 2016‚ the board decided to procure the services of an advisory company to assist SAA with the transaction. Stimpel said the move was unnecessary‚ because SAA had its own capacity to source the money and had already done most of the financial work around it.

In March that year‚ SAA received bids from entities like Deloitte‚ Gupta-linked company Regiments Capital‚ Nedbank and BnP Capital (which was described as “boutique financier”). The contract was awarded to BnP Capital for work that‚ according to Stimpel‚ was already completed by her team.

Then in April 2016 SAA’s board extended BnP’s mandate and scope‚ now asking the company to source the R15bn capital it needed. Stimpel said this was done without following procurement processes.

BnP stood to earn a success fee of about R300m for sourcing the money for SAA‚ which Stimpel said was more than three times the normal market fee.

Her testimony continues on Friday.