Trillian’s bid to grab the Carlton Hotel
Newly obtained e-mails show how Transnet was happy to hand control of its property empire – including the Carlton Hotel – to Trillian, for little apparent benefit to itself
Gupta-linked investment firm Trillian Asset Management charged Transnet R46m for "property management services" it never delivered. This has emerged from thousands of internal e-mails, obtained by the Organised Crime & Corruption Reporting Project (OCCRP), that reveal how Trillian planned to shift state properties into private entities under its control — an idea it hoped to replicate at Eskom too.
Even though Transnet never officially approved the plan, and experts warned it was illegal, the rail utility began paying out millions to Trillian nevertheless.
The revelations of the property shenanigans add to the many allegations of malfeasance against Eric Wood, a former Investec trader who founded Trillian with Salim Essa, an associate of the Guptas. Neither has been arrested.
"With the help of auditors, lawyers, and bankers … the company traded on political connections and inserted themselves where they added no value," says Hennie van Vuuren, founder of transparency group Open Secrets.
In this case, Trillian eyed Transnet’s enviable property empire, worth R30bn and stretching from Schoeman Park, a century-old Bloemfontein golf club favoured by SA’s colonial elite, to Joburg’s historic Carlton Hotel, where Nelson Mandela declared victory against apartheid in 1994.
The leaked e-mails show that as far back as 2010, when he worked for Regiments Capital, Wood tried to buy the Carlton Hotel. Though that bid failed, he spent the next few years forging an alliance with Essa and forming Trillian.
In October 2015, Trillian and two little-known partners, Avren and Fuel Property Group (FPG), began sending unsolicited bids to manage Transnet’s properties — including the Carlton Centre — using a financial model they claimed Avren had developed.
It was dubious from the start. Avren wasn’t even registered as a company until the following month. And so little did Trillian value the "financial model" that at one point it offered to sell it to FPG for just R1, correspondence shows.
Still, the idea pitched to Transnet involved shifting 151 of its most valuable properties, worth more than R4bn and generating R610m in annual revenues, into a new trust, from which they would be privately managed.
In return, Transnet would receive only a debenture issued by the trust — a long-term security that yields a fixed rate of interest and isn’t backed by any collateral.
Calling their plan "Project Navigator", Trillian and its partners assured Transnet that they could bring in an additional R1.1bn by selling the properties.
However, their real motivation may have been to create an opportunity to charge Transnet exorbitant fees for little work. The Project Navigator "model" would allow Transnet to keep less than 75% of the income generated by property it used to own and manage itself.
Avren and FPG, as the property managers, would get 25% of the annual income, while Trillian would be paid a 2.5% management fee, for services that Transnet’s own property team used to perform in-house. This effective 27.5% fee that Transnet would give away is far higher than any property manager would charge.
Trillian argued that the state firm’s valuable portfolio was underperforming and would do better under private management than under Transnet’s in-house property team.
E-mails suggest that Trillian and Avren intended that many of the properties be sold to other state-owned entities, including the Public Investment Corp (PIC). Presumably, they would make a large commission on this sale.
The 10 properties they immediately targeted for sale to the PIC included 1 Adderley Street in Cape Town, the Carlton Centre, the Schoeman Park golf course and the Humewood recreational club.
In June 2016, Transnet officials wrote to the then public enterprises minister Lynne Brown to seek formal approval for the unusual deal. But what Transnet didn’t tell Brown is that it had already embarked on the deal months earlier, without permission.
It turns out its officials had quietly tacked the agreement onto the already approved deal brokered by Essa to bring Chinese locomotives to SA. So Transnet began paying Trillian management fees for its property portfolio before formal approval was granted.
The documents show that Trillian sent invoices totalling R46m to Transnet with the reference "Transnet Property".
The first invoice was submitted on April 15 2016 — the same day the company submitted its proposal. Transnet paid out around 95% of the contract value, according to the confidential documents.
It is unclear if the firms did anything at all in exchange for these fees, but OCCRP has been unable to find evidence that they managed Transnet’s properties.
The leaked e-mails do not make clear whether the properties were ever transferred into the trust. Neither Transnet, Wood, Essa nor Avren director Mikhail Shapiro responded to requests for comment.
Brown’s response is not recorded in the e-mails, and OCCRP could not confirm if she ever approved Project Navigator. In testimony before the state capture commission in 2017, Brown said she was "not aware of any Gupta-owned companies that operate in Transnet now under my watch".
Several red flags stood out from the beginning — so vividly that multiple advisers warned Trillian that the deal would violate, at the least, the constitution and the Public Finance Management Act.
For example, the unsolicited bid provided an exclusive option to only one client, while the law says bids for public services should be put up for public tender or comment. Transnet also failed to advertise a tender for property management services, even as it began paying Trillian and Avren.
It seems the Transnet property deal was to have provided a template that Trillian hoped to replicate at Eskom. At a special strategic meeting in 2015, Eskom approved in principle the sale of "residential and noncore properties". OCCRP could not ascertain if this scheme went ahead.
*Sharife and Anderson work for the OCCRP
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