Mahomedy said that Transnet had favoured floating interest rates on its loans. This is an interest rate which is linked to an index and can vary depending on different factors. If for example, the Johannesburg Interbank Rate Index increases, then the interest rate will increase and the opposite is true, Mahomedy explained to the commission.
Transnet could also opt for an interest rate swap – this is when the floating interest rate is swapped for a fixed rate – as a derisking mechanism for the borrower and the lender. That is to say, it protects the borrower in the event the interest rate increases too much and to protect the lender if the interest rate decreases too low. The swap should not affect the loan transaction, Mahomedy said.But many factors must be considered before going though with this transaction, Mahomedy said.
He explained for a business the size of Transnet, and the significant role it plays in the public funding space, it would be expected that multiple opinions would have been sought before the interest rate swap was authorised.At the time the swap was authorised by Pita in December 2014, Ramosebudi's subordinate – deputy treasurer Danie Smith had advised against the swap, Mahomedy told the inquiry.
Mahomedy explained that the interest rate swap was not handled internally at Transnet even though its treasury team was more than capable of facilitating the swap, suggesting Regiments services were not necessarily needed.
Fin24 Just like that. Amazing. But the cANCer doesn't believe in privatisation, right ? 🤣
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