New light cast on how banks pulled plug in RAG case
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Funding lines cut from R210m to R140m'
Financial Services Correspondent
EVIDENCE that four top SA banks pulled the plug on Retail Apparel Group (RAG) without reasonable notice continued to mount this week as McCarthy financial director Eugene Roden testified at the insolvency inquiry.
The inquiry has provided a window into the behind-the-scenes dealings in RAG, highlighting the tough negotiations with the banks to keep the cash-guzzling clothing retailer RAG alive.
But Roden testified this week how the banks had slashed their funding lines from R210m to R140m in the space of a few weeks despite apparent assurances that the funding lines would remain in place.
This led to RAG being placed in liquidation in May last year.
McCarthy owned 96% of RAG up until its liquidation, and CEO Brand Pretorius told the inquiry in January he considered the banks may have acted "in bad faith".
This week Roden backed up the view of his CEO, saying he had been "extremely surprised" by the way the banks acted.
When asked if the banks had breached their undertakings given at the start of the financial year, Roden said: "The only way I could say it was breached was the fact that the notice was extremely short. They did say there would be fair notice in withdrawing it."
Roden said he had believed the funding lines would remain in place until the end of the financial year, based on the banks' assurances to RAG's auditor, Deloitte & Touche.
He said officials from FirstRand, the head of the banking consortium, had also given RAG this reassurance.
"We thought maybe we would be given more notice should the facilities be reduced quite dramatically," he said.
The banks were entitled to pull the funding at some stage, but the issue was whether they gave reasonable notice a concern that will resonate with other firms borrowing from major banks.
RAG's business model may have been flawed, but the way in which the banks pulled their funding raises questions.
Roden said the banks had not given any indication they would do this during the financial year. "We would not have issued the results with a clean audit report and signed by the directors had we been given that impression," he said.
He said that with more time, other options, including alternative funding, could have been explored.
The banks had given RAG an "extremely unrealistic" timeframe to make alternative plans, leaving "us only with the option to liquidate".
He said RAG raised the issue of the assurances given by FirstRand, and was told "you have dealt with banking long enough and you know that these are term facilities on demand and we can call them up with immediate notice".
The allegations racking up against FirstRand will be put to the bank when its officials, Theunie Lategan and Ferdi Swanepoel, testify in December.
The pair were due to testify earlier this year but requested to be handed a list of the topics on which they were going to be questioned. This was turned down by the commissioner, and FirstRand took his decision on review to a Durban High Court in February and lost.
Suspended justice department official Mike Tshishonga will reappear today to tell the inquiry about allegations he made earlier this month that R950000 "changed hands" in the liquidation.
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