Johannesburg Mayor Herman Mashaba said the City’s funds have been placed at risk due to unsecured lending to State-owned Denel through Regiments Capital, a company with links to Gupta-family associates.

In a statement, Mashaba said the loans to Denel amounted to R290-million, with Regiments Capital acting as the middleman.

"Regiments was appointed to perform the fund management contract – following a tender process seemingly tailored for it as the incumbent. At the time, it was alleged that Regiments' bid was arguably the most expensive out of 11 competitors, including large banks and specialist fund managers, who were disqualified," Mashaba said.

"The City has now been alerted to the fact that Regiments Securities, acting as middleman, arranged a private placement of R290-million from our sinking fund (managed by Regiments Capital) to Denel," he said.

"Due to the manner in which Regiments committed this money to Denel, as a private placement, the City’s funds are essentially unsecured."

Mashaba said the money was meant to mature this past Sunday, but the City was informed that Denel was unable to honour the payment due to their own financial issues.

The State-owned arms supplier’s own financial woes has been well documented, with reports last December suggesting that the company would not be able to pay salaries.

Fin24 reported in January that Zwelakhe Ntshepe, the CEO at the time, said salaries had always been paid.

"We have never not paid salaries at Denel," he said at a briefing earlier this year.

"I am happy to say, we paid all salaries. We do not owe anyone any salaries from this point. We will continue paying salaries. We did not have a problem paying salaries in January, we will not have a problem paying in February or in March."

'Deep-rooted corruption'

Mashaba said he and senior City officials had a teleconference with Public Enterprises Minister Pravin Gordhan on Sunday night.

"I am confident that the Minister, along with the new board of Denel, are doing everything possible to restore stability in this company, following crippling challenges as a result of state capture at the hands of the Gupta family and its business associates," he said.

"Of course, it is deeply disturbing to now find out that City funds have been placed at risk in this process and it is extremely difficult to dissociate Regiments from Gupta influence given the fact that [former Trillian CEO] Eric Woods was part of its leadership at the time."

Mashaba said, since becoming mayor, his administration had been plagued by challenges inherited from the previous ANC-led administration.

"One of the largest being the deep-rooted corruption which had become a norm in the City," he said.

Denel said in a statement that it was pleased with the engagements between Group Chief Executive Michael Kgobe and his management team to scrutinise the profits and losses of each decision.

"We are obviously very pleased with the extension of the unsecured debt. We are, however, not out of the underlying difficulties yet," said chairperson of the Denel board of directors, Monhla Hlahla.

"With the right focus and an accountable leadership, Denel can return to its role as a key contributor to the defence and security of South Africa."