C O M M I S S I O N O F I N Q U IR Y I N TO S TAT E C A P T U R E
H E L D AT
PA R K TO W N , J O H A N N E S B U R G

10

05 JUNE 2019

D AY 1 0 6

20

05 JUNE 2019 – DAY 106
PROCEEDINGS ON 5 JUNE 2019
C H A I R P E R S O N : I t l o o k s li k e w e a r e n o t r e a d y. I w il l a d j o u r n . I w il l
a d j o u r n f o r f iv e m in u t e s .
A D V PA U L J O S E P H P R E TO R I U S S C : M y a p o lo g i e s C h a ir.
R E G I S T R A R : Al l r i s e .
INQUIRY ADJOURNS
INQUIRY RESUMES
C H A I R P E R S O N : G o o d m o r n i n g M r Pr e to r i u s , g o o d m o r n i n g e v e r y b o d y.
Thank you.
10

A D V PA U L J O S E P H P R E TO R I U S S C : M o r n i n g C h a ir.
C H A I R P E R S O N : Ye s a r e w e r e a d y ?
A D V PA U L J O S E P H P R E TO R I U S S C :

Ye s .

A p o lo g i e s fo r th e d e l a y

C h a ir o n e o f th e t e c h n o l o g ic a l d e v ic e s o n w h ic h w e r e ly d e c id e d t o g i v e
u p t h e g h o s t.
C H A I R P E R S O N : H m . O k a y. N o t h a t is fi n e .
A D V PA U L J O S E P H P R E TO R I U S S C : C h a ir w e a r e c o n ti n u i n g w i t h t h e
e v i d e n c e o f D r Bl o o m a n d h o p e t o fi n a li s e t o d a y. I n f a c t w e w il l m a k e
e v e r y e ffo r t t o f i n a li s e t o d a y a n d …
C H A I R P E R S O N : Ye s .
20

A D V PA U L J O S E P H P R E TO R I U S S C : A n d w e m i g h t e v e n fi n i s h a l i t tl e
e a r l ie r t h a n f o u r o ’ c l o c k .
C H A I R P E R S O N : O k a y n o th a t i s f in e . D r B l o o m .
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.
C H A I R P E R S O N : T h e o a t h – y o u – y o u d o u n d e r s t a n d t h a t t h e o a th y o u
t o o k t h e o t h e r d a y c o n t in u e s to a p p ly u n t il y o u h a v e f i n is h e d y o u r

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05 JUNE 2019 – DAY 106
evidence?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : Yo u c o n s i d e r y o u r s e l f s ti l l u n d e r t h a t o a t h ?
D R J O N AT H A N Z O R A H B L O O M : I d o C h a ir.
C H A I R P E R S O N : Ye s t h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C :

Just by way of summary and

in tr o d u c t i o n t o t o d a y ’s e v i d e n c e D r B l o o m w e w il l d e a l w it h a n d h a v e
d e a lt w i th t h r e e tr a n s a c ti o n s . Th e f ir s t is t h e – w h a t w a s t h e r e f e r r e d
t o a s th e C D B lo a n t h e C h i n a D e v e l o p m e n t B a n k l o a n i n a n a m o u n t o f
10

2 .5 b i ll io n d o ll a r s o r ig i n a lly.
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E T O R I U S S C : Yo u t o l d t h e C h a ir t h a t t h a t w a s
s p l i t i n t o t w o a m o u n ts . A n a m o u n t o f 1 . 5 b i ll io n d o l la r s a n d a n a m o u n t
o f 1 b il li o n d o l l a r s .

T h e la t t e r a m o u n t o f 1 b il li o n d o ll a r s w a s n e v e r

u til iz e d a n d i n f a c t f e ll a w a y.
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C :

I t w a s r e p la c e d b y th e s e c o n d

lo a n t h a t y o u s p o k e a b o u t a n d w e w i ll a ls o s p e a k a b o u t t o d a y a n d t h a t
is a 1 b i ll io n d o l la r f a c il it y th a t w a s a b a n d o n e d a n d t h e 1 2 b i ll i o n c l u b
20

lo a n s y n d ic a te d c lu b l o a n t h a t y o u s p o k e a b o u t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

The former loan the 1.5

r e m a in in g C h i n a D e v e l o p m e n t B a n k l o a n w a s a c r o s s b o r d e r lo a n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : Th e l a t te r w a s a d o m e s t ic l o a n ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A l b e i t s y n d ic a te d . T h e n y o u w il l
t a lk l a te r i n y o u r e v i d e n c e o f a th ir d a m o u n t a n d th a t is a n e x is ti n g
Tr a n s n e t d e b t o f R 11 .3 b i ll io n .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : T h a t w a s h e d g e d b y m e a n s o f a
s w o p . In o th e r w o r d s f i n a n c ia l i n s tr u m e n t s u s e d t o p r o t e c t a g a i n s t r is k
w e r e u ti lis e d .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
10

A D V PA U L J O S E P H P R E T O R I U S S C : A lr ig h t . If w e c a n t h e n ju s t g o
b a c k p l e a s e t o p a g e 2 1 o f E x h i b i t B B 8 [ d ]. A r e y o u th e r e ?
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r t h a n k y o u .
A D V PA U L J O S E P H P R E T O R I U S S C : Th i s i s t h e d i a g r a m t h a t w e d e a l t
w i t h a t th e c o n c lu s i o n o f o u r e v i d e n c e la s t w e e k e x p l a i n i n g o n e o f t h e
fi n a n c i a l in s tr u m e n ts u s e d t o p r o t e c t o r h e d g e a g a in s t r is k .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C :

A n d y o u g o in g to d e a l w i th a n

in t e r e s t r a t e s w o p w h i c h w a s t h e f in a n c i a l i n s tr u m e n t o r h e d g e
in s t r u m e n t u s e d in t h i s p a r t ic u l a r c a s e i n r e l a ti o n to t h e 1 2 b il li o n c l u b
20

lo a n .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : R i g h t. S o w h a t h a p p e n s is i f w e
c a n ju s t s u m m a r is e t h is b e c a u s e i t is r e l e v a n t to th e n e x t tr i p – p a r t o f
your evidence.

O n th e r i g h t h a n d s i d e o f t h e d ia g r a m y o u h a v e t h e

o r i g in a l l o a n . S o t h e r e is a c o n s o r ti u m o f le n d e r s o r th e c l u b t h e y le n d

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05 JUNE 2019 – DAY 106
m o n e y to t h e b o r r o w e r Tr a n s n e t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : T h e l o a n a g r e e m e n t w a s e n t e r e d
in t o o r a n a m o u n t o f R 1 2 b il li o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : 1 2 b il li o n n e ?
A D V PA U L J O S E P H P R E TO R I U S S C : R 1 2 b il li o n .
C H A I R P E R S O N : B i ll io n h m .
A D V PA U L J O S E P H P R E TO R I U S S C : A n d th e i n t e r e s t r a t e …
10

C H A I R P E R S O N : I t h i n k y o u s a i d – y o u m a y h a v e s a i d 1 2 m il li o n .
A D V PA U L J O S E P H P R E TO R I U S S C :

O h d i d I? Ye s t h a t m a y b e m y

s in u s is s u e . B u t le t u s n o t g o t h e r e C h a ir.
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C : R 1 2 b il li o n .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y.

A n d t h e r e w a s f lo a ti n g

in t e r e s t r a t e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :
20

E n te r e d i n t o a n d y o u t o l d th e

C h a ir t h a t t h a t a g r e e m e n t w a s e n t e r e d i n t o o n t h e 2 3 N o v e m b e r 2 0 1 5 ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :
that

days

agreement

la t e r

Tr a n s n e t

involving

a

e n te r e d

f in a n c ia l

Right.
into

a

Yo u a l s o to l d t h e C h a ir
separate

tr a n s a c ti o n

th e

and

goal

d is c r e e t
of

which

p u r p o r t e d ly a t l e a s t w a s to p r o te c t Tr a n s n e t a g a i n s t t h e r i s k a r is i n g

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05 JUNE 2019 – DAY 106
fr o m it h a v i n g e n t e r e d i n t o a fl o a ti n g r a t e i n te r e s t r a t e a g r e e m e n t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C : A n d th a t is o n t h e l e ft h a n d s id e
o f t h e p a g e . Tr a n s n e t w a s t h e o n e c o u n t e r p a r ty a n d N e d b a n k w a s th e
o th e r c o u n t e r p a r t y.
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

Correct.

W e j u s t s u m m a r is i n g

w h a t w e w o u l d h a v e s ta t e d t o t h e C h a ir a l t h o u g h n o t c o m p le t e l y o n c e
m o r e . S o in e s s e n c e w h a t Tr a n s n e t s a y s t o i ts e l f I h a v e e n te r e d i n to a
10

la r g e l o a n o f R 1 2 b ill i o n a t a fl o a ti n g i n t e r e s t r a t e .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : I h a v e a r is k . T h e i n t e r e s t r a te
m a y r i s e t o th e e x t e n t t h a t i t m a y c a u s e f i n a n c i a l p r o b l e ms . I m a y n o t
b e i n a p o s i t io n t o p a y a n e v e r i n c r e a s in g f lo a ti n g i n t e r e s t r a te o n t h i s
c a p i t a l a m o u n t o f R 1 2 b ill i o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : I t t h e n s a y s I a m g o i n g t o s e e k
o u t a c o u n t e r p a r t y w i t h w h o m I c a n t r a n s a c t i n o r d e r t o p r o t e c t m y s e lf
a g a in s t t h e r is k ?

20

D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

I w i ll e n te r i n to t h is a g r e e m e n t

a s y o u e x p l a i n e d t o t h e C h a ir o n th e b a s i s t h a t I f o r e c a s t t h a t in t e r e s t
r a te s a r e g o i n g t o r is e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

I f I c a n f in d s o m e o n e w h o w il l

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05 JUNE 2019 – DAY 106
e n t e r in t o a tr a n s a c t i o n w i th m e o n it s u n d e r s t a n d in g t h a t in t e r e s t r a t e s
w i ll n o t r is e a n d t h a t th e f ix e d r a te w i ll a lw a y s b e h i g h e r t h a n t h e
fl o a ti n g r a t e t h e n w e c a n e n t e r i n to a n e g o ti a ti o n a n d e n t e r in t o a
swop?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d y o u d e s c r ib e d th e s t a n c e s
t h a t e a c h p a r ty t a k e s – e a c h c o u n t e r p a r t y ta k e s i n e n t e r i n g i n t o s u c h
a n a r r a n g e m e n t. S o f o r a s lo n g a s th e fl o a t in g r a t e is h i g h e r t h a n t h e
fi x e d r a te Tr a n s n e t w i ll s t a n d t o g a i n ?
10

D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : B e c a u s e – a n d f o r a s lo n g a s th e
fi x e d r a t e i s lo w e r th a n t h e – is h i g h e r th a n t h e f lo a ti n g r a t e t h e n
N e d b a n k s ta n d s to g a i n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : S o w h e n y o u s a y i n t h e d ia g r a m
N e d b a n k p a y s th e f l o a t in g r a t e t o Tr a n s n e t a n d Tr a n s n e t p a y s t h e fi x e d
r a te t o t h e c o u n t e r p a r ty N e d b a n k th e y d o n o t a c t u a ll y d o t h a t?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a i r i t is n o t i o n a l .
A D V PA U L J O S E P H P R E TO R I U S S C :

20

It is n o t i o n a l a n d i t i s ju s t th e

d i ff e r e n c e b e tw e e n t h e t w o w h a t y o u c a ll t h e n e t t c a s h fl o w o f n e t t in g
o ff t h o s e t w o a m o u n ts t h a t i s p a i d b y o n e p a r t y t o th e o th e r ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : W h a t h a p p e n e d i n th is c a s e ?
D R J O N AT H A N Z O R A H B L O O M : I n t h is p a r ti c u la r c a s e th e r a te s w e r e
fi x e d a t a – a t q u i t e a h i g h l e v e l a n d Tr a n s n e t a s i n d ic a te d w e r e p a y i n g

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t h e f ix e d r a t e a n d N e d b a n k w o u l d n o ti o n a l ly b e p a y i n g th e fl o a ti n g r a t e
a n d e s s e n ti a l ly w h a t h a s h a p p e n e d u p t o n o w w h i c h w e w i ll s e e a ls o
la t e r C h a ir is t h a t th e f l o a t in g r a t e s h a v e n e v e r e x c e e d e d t h e fix e d
r a te s a n d th e y a c t u a l ly h a v e n e v e r e v e n c o m e c l o s e t o e x c e e d i n g t h e
fi x e d r a te s .
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t .
C H A I R P E R S O N : W e ll ju s t b e fo r e y o u p r o c e e d o n t h a t .
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.
C H A I R P E R S O N : Yo u s ta t e d t h a t t h i s h a p p e n e d w i th i n a m a t t e r o f d a y s .
10

D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : I s t h a t r ig h t ? N o w I t h i n k w h e n w e l a s t d i s c u s s e d th is
h e r e o n e o f t h e is s u e s I h a d r a is e d w a s t h a t o n e w o u l d h a v e e x p e c t e d
Tr a n s n e t t o h a v e d o n e it s h o m e w o r k b e f o r e e n te r i n g i n t o t h e fl o a ti n g
in t e r e s t r a t e r e g i m e .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : A n d a s s u m in g th a t i t h a d d o n e i ts h o m e w o r k t h e n o n e
m u s t c o n c l u d e t h a t it h a d r e a c h e d t h e c o n c l u s i o n t h a t i t w a s b e t te r t o
g o w i th t h e f lo a ti n g i n t e r e s t r a te r e g i m e r a th e r t h a n a fix e d r a t e
regime?

20

D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
CHAIRPERSON:

W h a t a r e t h e c h a n c e s t h a t i f t h e y h a d d o n e t h e ir

h o m e w o r k b e f o r e e n te r i n g i n to t h e f l o a t i n g i n t e r e s t r a t e a r r a n g e m e n t
t h a t w i t h i n a m a t t e r o f d a y s t h e y w o u l d h a v e a d i ff e r e n t f o r e c a s t o f h o w
t h e i n t e r e s t w e r e lik e l y t o – to g o o v e r t h e y e a r s o f t h e tr a n s a c ti o n o r
w h a t a r e t h e c h a n c e s t h a t li k e i f y o u d o y o u r h o m e w o r k a n d y o u c o m e

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05 JUNE 2019 – DAY 106
t o th e c o n c lu s i o n to d a y t h a t t h e – th e b e s t r e g i m e f o r y o u is a f lo a ti n g
in t e r e s t r a t e f o r th e n e x t t e n y e a r s o r w h a t e v e r th e p e r i o d is t h a t a f te r a
f e w d a y s y o u c o u ld h a v e a c o m p le t e l y d i ffe r e n t o p i n io n a n d n o w s e e k to
h a v e a fix e d r a t e .
A D V PA U L J O S E P H P R E TO R I U S S C : C h a ir t h a t s e e m s to b e s tr a n g e
b e c a u s e i n t e r m s o f a n d w e w il l s e e la t e r a s w e ll t h a t in te r m s o f t h e
r is k m a n a g e m e n t fr a m e w o r k p o l ic y o f Tr a n s n e t th a t t h e y w o u l d – if t h e y
m a d e a d e c i s i o n t o fi x t h e r a t e s a t th a t p o i n t i n ti m e if t h a t d e c is i o n –
g iv e n t h a t t h e y s w o p p e d i t t h r e e d a y s l a t e r if t h e y m a d e t h a t d e c is i o n
10

t h e n i t w o u ld h a v e b e e n in li n e w it h t h e r is k m a n a g e m e n t fr a m e w o r k . I n
t h is p a r tic u la r c a s e it w a s n o t in li n e w i t h t h e r i s k m a n a g e m e n t
fr a m e w o r k p o li c y a n d t h e y w o u l d h a v e m a d e a c a l l p r i o r t o a c t u a lly
e n t e r in g in t o t h e l o a n o n th e 2 3 N o v e m b e r t h a t in t e r e s t – t h e s e – t h i s i s
w h a t w e e x p e c t in t e r e s t r a te s t o d o i n th e n e x t – in t h e s h o r t t e r m , i n
t h e m e d iu m t e r m a n d p o t e n t ia ll y t h e lo n g te r m a n d t h e y w o u ld h a v e
lo c k e d in t h e a p p r o p r i a t e r a t e a t t h a t p o i n t in ti m e n o t t h r e e d a y s la t e r.
C H A I R P E R S O N : S o i t is q u it e s tr a n g e t h a t t h e r e w a s th is c h a n g e o f o r
w h a t a p p e a r s to b e a c h a n g e o f v ie w ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.

20

C H A I R P E R S O N : Ye s . O k a y t h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C :

I t h in k in th e c o u r s e o f y o u r

e v i d e n c e to c o m e y o u r v i e w is a li t tl e s tr o n g e r t h a n s tr a n g e b u t l e t m e
n o t p u t w o r d s i n y o u r m o u t h a n d w e w il l d e a l w i t h t h e q u e s ti o n i n d e t a il
C h a ir.

B u t p e r h a p s o n e s h o u l d f la g o n e is s u e f o r t h e m o m e n t .

The

c o n te n t o f t h e s w o p a r r a n g e m e n t b e tw e e n t h e t w o c o u n t e r p a r t ie s

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05 JUNE 2019 – DAY 106
N e d b a n k a n d Tr a n s n e t is e s s e n ti a l ly N e d b a n k s a y s y o u p a y m e t h e
fi x e d r a t e a n d I w il l p a y y o u t h e f lo a ti n g r a te w e w i ll n e t t t h e t w o o ff
a n d th a t s u m w i ll e i t h e r g o to y o u Tr a n s n e t o r g o to N e d b a n k .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

D e p e n d in g o n w h i c h is th e

higher?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : R i g h t. S o N e d b a n k a s s u m e s t h e
r is k o n th e b a s is t h a t if th e fl o a t in g r a t e r e m a i n s l o w c o n tr a r y t o t h e
10

p r e d ic ti o n s o f Tr a n s n e t it w i ll p r o fi t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O n t h e o t h e r h a n d Tr a n s n e t s a y s
if t h e fl o a t i n g r a te d o e s r is e I a m p r o t e c t e d b e c a u s e a l l I h a v e t o d o is
p a y t h e f ix e d r a t e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C :

B u t w e s h o u l d f la g a n is s u e

h e r e . T h e f ix e d r a te i s t h a t th e r a t e t h e m a r k e t r a t e a t w h ic h t h e l o a n
c o u l d h a v e b e e n e n te r e d in t o i n th e f ir s t p l a c e o r is i t a d i ffe r e n t f ix e d
r a te ?
20

D R J O N ATH A N Z O R A H B L O O M :
there are two rates.

C h a ir t h e r e a r e – t h e r e a r e t w o –

T h e o n e – w h e n y o u p r ic in g t h e s e ty p e s o f

tr a n s a c ti o n s i n o th e r w o r d s y o u g o i n g i n t o t h e m a r k e t t o f in d o u t o k a y
s o i f I w a n t e d a fi x e d r a t e w h o is p r e p a r e d to g i v e m e a fi x e d r a t e a n d
at what rate?
A D V PA U L J O S E P H P R E TO R I U S S C : A r e y o u t a lk i n g a b o u t i n a s w o p

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05 JUNE 2019 – DAY 106
tr a n s a c ti o n ?
D R J O N ATH A N Z O R A H B L O O M :

In a s w o p tr a n s a c ti o n .

And you

w o u ld – y o u w o u ld l o o k a t w h a t t h e m a r k e t s a y s . T h e n i t w o u l d b e c o m e
a n e g o ti a ti o n i n t e r m s o f – b u t t h is i s w h a t t h e m a r k e t s a y s b u t a s t h e
p e r s o n t h a t i s d e m a n d i n g t h e fi x e d r a te in o th e r w o r d s I a m p r e p a r e d t o
p a y i t is – i t w i ll b e a h i g h e r r a te . S o t h a t is th e – th e r e a r e t w o – w h e n
w e t a lk a b o u t t h e fi x e d r a t e s i n th is p a r ti c u l a r c o n t e x t w e ta lk i n g a b o u t
t w o r a t e s . T h e o n e t h a t is m a r k e t r e l a te d a n d t h e o t h e r o n e i s – is t h e
a c t u a l r a t e th a t i s c o n c l u d e d i n a n e g o ti a ti o n a n d a g r e e d to .
10

A D V PA U L J O S E P H P R E TO R I U S S C : I n t h e s w o p
D R J O N AT H A N Z O R A H B L O O M : In t h e s w o p .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o h a d Tr a n s n e t i n N o v e m b e r

2 0 1 5 d e c i d e d to e n t e r in t o a lo a n a t a f ix e d r a t e .
CHAIRPERSON:

I a m s o r r y.

Is th a t o u ts i d e ?

Is th a t n o is e fr o m

o u t s i d e ? J a i t l o o k s lik e i t is fr o m o u ts id e .
A D V PA U L J O S E P H P R E TO R I U S S C : I a m t o l d i t i s o u ts id e C h a ir.
C H A I R P E R S O N : Ye s . W e ll s o m e b o d y w il l tr y a n d s e e i f w e – t h e r e i s
a n y c h a n c e o f t h e m – o f t h e n o is e n o t a ff e c ti n g u s in a n y s e r i o u s w a y.
O k a y le t u s p r o c e e d i n th e m e a n t i m e .
20

A D V PA U L J O S E P H P R E T O R I U S S C : M r Br o w n w e w e r e d e a l i n g t h e n
w i t h t h e t w o f ix e d i n t e r e s t r a te s a m o u n ts . B u t in la y l a n g u a g e i f I – i f
Tr a n s n e t h a d e n t e r e d i n t o a fi x e d r a te a t t h e ti m e t h e f lo a ti n g r a t e
a g r e e m e n t w a s e n te r e d in t o i f it h a d d e c id e d w is e ly i n y o u r v i e w t o
s i m p l y s a y I w a n t a f ix e d l o a n n o t a fl o a ti n g i n te r e s t r a t e lo a n i t w o u l d
h a v e d o n e s o a t a r a t e d e t e r m i n e d l a r g e ly n o t t o t a lly b y t h e m a r k e t ?

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D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

However in this case when it

e n t e r s i n t o th e s w o p a r r a n g e m e n t w it h t h e c o u n t e r p a r ty N e d b a n k t h e
fi x e d r a te is n o t th e m a r k e t r a te i t is a n e g o ti a te d r a te ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : W h i c h i n t h is c a s e a n d o r d i n a r i ly
w o u ld b e h ig h e r th a t t h e m a r k e t r a t e ?
D R J O N ATH A N Z O R A H B L O O M :

C h a ir y e s b u t o n ly – o n l y s l ig h tl y

b e c a u s e th e m a r k e t r a te is – fr o m a f ix e d r a te p e r s p e c t iv e w o u l d b e t h e
10

b a s e a n d th e n th e r e a r e c e r t a i n s m a ll a d ju s t m e n ts t h a t a r e m a d e f o r
f u r th e r r i s k t h a t is t a k e n b y th e c o u n t e r p a r ty.

So it would not – it

w o u ld n o t b e s u b s t a n t ia ll y h i g h e r i t w o u l d b e a c o u p le o f te n t h s o f a
p e r c e n t m o r e . B u t i t w i ll n o t b e – i t w il l n o t b e s i g n i fi c a n t .

It is j u s t

m e r e ly th a t – th a t c o u n t e r p a r t i e s a s s u m e f u r th e r – a s s u m e f u r th e r r is k
a n d th e r e f o r e c o m p e n s a te f o r t h a t r is k i n a d d i n g a c o u p l e o f t e n t h s o f a
p e r c e n t t o a – t o th e fi x e d b a s e r a te .
C H A I R P E R S O N : O k a y. T h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C : S o w h e n e n t e r in g i n to th e s w o p
a r r a n g e m e n t i t is n o t a s i f I s i m p ly p u t m y s e l f i n t h e p o s i ti o n I w o u l d
20

h a v e b e e n h a d I e n te r e d i n to a fix e d r a t e . I a m p a y i n g a p r e m iu m o n
t h e fi x e d r a te in t h e s w o p a r r a n g e m e n t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C :

I n t h is c a s e w a s t h e d i ff e r e n c e

b e t w e e n th e m a r k e t r a t e o r w h a t y o u c a ll th e m id - m a r k e t r a t e a n d h e
a c t u a l f ix e d r a t e p a id in t h e s w o p m i n o r o r s u b s t a n t ia l?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : S u b s ta n t ia l C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : S o it s e e m s w h a t y o u a r e s a y i n g
it w a s e x c e p t io n a l ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

R i g h t i f w e c a n th e n g o o n t o

p a g e 2 2 . Yo u s a y th e r e in t h e fi r s t b u ll e t a n d p e r h a p s y o u s h o u ld t e ll
the Chair what you say by way of sum mary of what we have been
d e a li n g w it h u p t o n o w.
D R J O N AT H A N Z O R A H B L O O M : S o e s s e n ti a l ly a s w e i n d ic a te d t h e r e
10

a r e t w o – th e r e a r e t w o c o u n t e r p a r t i e s i n t h e tr a n s a c ti o n . T h e o n e th a t
is w i ll i n g t o p a y th e f ix e d r a te a n d t h e o t h e r o n e th a t is w il li n g t o p a y a
fl o a ti n g r a te o n t h e n o t io n a l a m o u n t . I n o th e r w o r d s o n t h e p r i n c ip l e ,
t h e c a p i t a l a m o u n t a n d t h e s e r a t e s w h a t is i m p o r t a n t a n d i t w i ll c o m e
o u t l a te r a s w e ll a r e e x c h a n g e d o v e r a p e r i o d o f t i m e i n t e r m s o f a n
a g r e e m e n t a n d t h a t c o u l d b e o n a – i t is n o r m a l ly o n a q u a r t e r l y b a s i s
o r it c o u ld b e a n y o th e r t i m e fr a m e b u t i n t h is p a r t ic u l a r in s t a n c e i t w a s
o v e r a f if t e e n y e a r p e r i o d o n e v e r y q u a r te r.
A D V PA U L J O S E P H P R E TO R I U S S C : T h e n l e t u s g o t o p a g e – d i d y o u
d e a l w it h t h e s e c o n d b u l le t ?

20

D R J O N AT H A N Z O R A H B L O O M :
C h a ir – th e s e c o n d b u l l e t .

N o I h a v e – I h a v e n o t d e a lt w i th i t

S o i t e s s e n t ia lly r e l a t e s t o t h e f ir s t o n e

C h a ir a n d t h e b a s e r a t e th a t t h e y – i n te r ms I t h i n k t h i s i s i m p o r t a n t
ju s t t o c l a r i fy. T h a t t h e b a s e r a t e o n f lo a ti n g b e c a u s e t h e r e is a b a s e
r a te f o r f ix e d , t h e r e is b a s e r a te f o r f l o a t i n g is a r a t e t h a t is u s e d b y –
t h a t is d e t e r m in e d b y t h e b a n k s in J o h a n n e s b u r g c a l le d t h e J I B A R a n d

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05 JUNE 2019 – DAY 106
t h e n a c o u n t e r p a r ty i n t e r m s o f p r o v i d i n g o r e n te r i n g i n t o a r a t e r e g i m e
w o u ld a d d a m a r g i n t o t h a t.

S o i t w o u l d b e t h e J I B A R r a te p l u s a

p e r c e n t a g e t o – a n d th a t w o u l d b e c o m e y o u r fl o a t in g r a te .
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d w e w il l d e a l w i t h th e

d i ff e r e n c e s b e t w e e n m a r k e t a n d s w o p r a te s in a m o m e n t?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : T h e n if w e c o u ld g o t o t h e n e x t
p a g e p l e a s e w h e r e y o u m a k e f u r t h e r p o i n ts a b o u t t h e s w o p i n s tr u m e n t.
D R J O N AT H A N Z O R A H B L O O M :
10

C h a ir b y w a y o f s u m m a r y t h e – y o u

e n t e r i n t o a s w o p a r r a n g e m e n t b e c a u s e t h e t w o c o u n te r p a r ti e s h a v e
d i ff e r e n t o r o p p o s i n g v i e w s . B e c a u s e if t h e o n e w a n t s a fi x e d th e o t h e r
o n e w o u l d w a n t a fl o a ti n g e t c e t e r a , e t c e t e r a . S o i t is a m e c h a n i s m t o
lo w e r t h e c o s t o f m o n e y o r t h e c o s t o f d e b t if y o u lik e i n t e r m s o f w h a t
one would – which one would achieve.

But also that would happen

in it i a l ly b u t th e n t h e m a r k e t f o r c e s k ic k i n a n d i t w ill r e s u l t i n e i t h e r
in c r e a s i n g o r d e c r e a s i n g b u t th a t i s w h y s w o p tr a n s a c ti o n s a r e d o n e
b e c a u s e o f t w o c o u n te r p a r ti e s h a v i n g o p p o s i n g v ie w s .
A D V PA U L J O S E P H P R E TO R I U S S C : R i g h t a n d o f c o u r s e it o n ly o ff e r s
y o u a w h a t y o u t e r m a l o w e r c o s t o f m o n e y i f th e m a r k e t m o v e s in
20

accordance with your predictions?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : I f i t d o e s n o t y o u s t a n d t o l o s e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : A s Tr a n s n e t d id in t h i s c a s e ?
D R J O N AT H A N Z O R A H B L O O M : Ye s , y e s C h a ir.

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A D V PA U L J O S E P H P R E TO R I U S S C :

S o y o u m a k e t h a t p o i n t in t h e

s e c o n d b u l le t w o u ld y o u j u s t d e a l w i t h th a t p l e a s e ?
D R J O N AT H A N Z O R A H B L O O M : S o e s s e n ti a l ly i f – i f Tr a n s n e t e n t e r e d
in t o a fi x e d r a t e if w e c a n u s e a n e x a m p le o f 1 5 % a n d t h e o t h e r c o u n t e r
p a r t y e n t e r e d i n to a f lo a ti n g r a te o f s a y 1 2 % . S o Tr a n s n e t w o u l d p a y
fi x e d 1 5 o r n o t io n a l ly a n d t h e o th e r – th e c o u n t e r p a r t y w o u l d p a y 1 2
a n d t h e n th e d i ff e r e n c e w o u l d b e p a id d e p e n d in g o n t h e s i t u a t io n . B u t
if f lo a ti n g r a te s w e r e t o i n c r e a s e – l e t u s a s s u m e t h a t t h e fl o a t i n g r a t e
w e n t fr o m 1 2 p e r c e n t a g e p o i n ts t o 1 3 a n d t h e – r e m e m b e r th e fi x e d r a te
10

– t h e f ix e d r a te is s ti ll 1 5 th e n t h e – th a t i s b e n e fic i a l to Tr a n s n e t o r t o
t h e f ix e d r a t e p a y e r i n t h is p a r ti c u l a r c a s e . I f fl o a ti n g r a t e s w e n t i n th e
o p p o s it e d ir e c ti o n i n o th e r w o r d s i f i t w e n t f r o m – m a y b e fr o m 1 2 t o 11
t h e n t h a t is n o t b e n e fi c i a l to Tr a n s n e t i t is b e n e f ic ia l t o t h e c o u n t e r
p a r t y p a y in g t h e fl o a ti n g r a t e .
A D V PA U L J O S E P H P R E T O R I U S S C :

S o le t u s u s e a n e x tr e m e

e x a m p l e b e c a u s e o f t e n e x t r e m e e x a m p le s il lu s t r a t e t h e p o in t b e t t e r.
L e t u s a s s u m e th a t i n th e s w o p tr a n s a c ti o n Tr a n s n e t h a s d e m a n d e d o r
h a s a g r e e d t o p a y – Tr a n s n e t h a s d e m a n d e d a n d N e d b a n k t h e c o u n te r
p a r t y h a s a g r e e d to p a y a f ix e d r a te t o Tr a n s n e t o r a ll o w Tr a n s n e t t o
20

p a y a fi x e d r a te o f 1 5 % . R ig h t .
D R J O N AT H A N Z O R A H B L O O M : O k a y.
A D V PA U L J O S E P H P R E T O R I U S S C : L e t u s a s s u m e t h e in t e r e s t r a t e ,
fl o a ti n g in t e r e s t r a te s k y r o c k e t to 2 0 % t h e n w h o g a i n s a n d w h o lo s e s ?
D R J O N AT H A N Z O R A H B L O O M :

Tr a n s n e t w o u l d g a i n b e c a u s e t h e ir

r a te r e m a i n s f ix e d a n d th e f lo a ti n g p a r t y o r t h e c o u n t e r p a r t y p a y i n g th e

Page 15 of 143

05 JUNE 2019 – DAY 106
fl o a ti n g r a t e w o u l d h a v e to …
A D V PA U L J O S E P H P R E TO R I U S S C : To Tr a n s n e t ?
D R J O N AT H A N Z O R A H B L O O M : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C : N o ti o n a lly.
D R J O N AT H A N Z O R A H B L O O M :

W o u l d h a v e t o p a y t h a t d i ff e r e n c e

b e t w e e n th e 1 5 a n d t h e 2 0 .
A D V PA U L J O S E P H P R E T O R I U S S C : I f t h e f l o a t in g r a te h o w e v e r d o e s
n o t g o a n y w h e r e n e a r 1 5 % b u t in f a c t r e m a in s a r o u n d 1 0 % w h o w i n s
and who loses?
10

D R J O N AT H A N Z O R A H B L O O M :

Tr a n s n e t w o u l d l o s e b e c a u s e t h e y

p a y f ix e d r a t e ir r e s p e c t iv e o f th e m o v e m e n t in m a r k e t r a t e s a n d th e
b e n e fic i a l p a r ty i n t h i s p a r tic u la r c a s e t h e n w o u l d b e th e c o u n t e r p a r ty
p a y i n g t h e f l o a t in g r a t e i n N e d b a n k [ in d is ti n c t ] .
A D V PA U L J O S E P H P R E TO R I U S S C : S o a l l th e c o u n te r p a r t y N e d b a n k
h a s to d o is p a y Tr a n s n e t th e f lo a ti n g r a t e o f 1 2 % i t is r e c e iv i n g th e
e q u iv a l e n t o f 1 5 % ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
CHAIRPERSON:

S o t h e – is th e p r i n c ip l e t h a t t h e p a r ty t h a t f a v o u r s

fi x e d – a fix e d r a t e g a i n s i f t h e fl o a ti n g r a t e i n c r e a s e s a b o v e t h e fi x e d
20

r a te a n d lo s e s i f t h e fl o a t in g i n t e r e s t r a t e g o e s b e l o w t h e f ix e d r a t e t o
w h ic h th e y h a v e a g r e e d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : Ye s o k a y.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d th e n t h e r e i s a c r e a t u r e i n
t h e m a r k e t c a ll e d t h e s w o p s d e a l e r t h a t i s t h e c o u n t e r p a r t y t h a t is t o

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05 JUNE 2019 – DAY 106
g o b a c k t o o u r e a r li e r a n a lo g y t h e i n s u r e r.
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d t h e d e a l e r m a k e s a p r o f i t a s
y o u a n d t h e C h a ir h a v e ju s t e x c h a n g e d v i e w s a b o u t, w h e r e d o t h e
d e a le r s m a k e t h e i r p r o fi t a s i t w e r e ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir t h e d e a l e r m a k e s p r o fi t

b e c a u s e – a s I i n d i c a t e d p r e v io u s ly y o u – t h e r e a r e tw o fi x e d r a t e s .
T h e o n e is t h e m a r k e t r a te a n d t h e o t h e r o n e is i f y o u li k e th e
n e g o ti a te d r a t e . S o t h e d e a l e r w o u ld s a y t h is is w h a t th e m a r k e t r a t e is
10

w h a t I w o u l d b e a b l e t o g e t i n t h e m a r k e t a n d t h e n e g o ti a te d r a t e i s
w h a t I c o n c l u d e w i th a – a c o u n t e r p a r ty.

S o t h e d i ffe r e n c e b e t w e e n

t h e m a r k e t r a te s li g h t ly a d j u s te d fo r – a s fo r t h e r is k s a s I i n d ic a t e d
a n d th e a c t u a l n e g o t ia t e d r a t e i s t h e p r o fi t t h a t th e d e a le r w o u l d m a k e .
A D V PA U L J O S E P H P R E TO R I U S S C :

Is p a r t o f t h e p r o fi t th e d e a l e r

w o u ld m a k e ?
D R J O N AT H A N Z O R A H B L O O M : P a r ty – C o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

Ye s w e l l a n d th a t d i ffe r e n c e

b e t w e e n t h e m a r k e t fix e d r a t e a n d t h e n e g o ti a t e d fix e d r a t e a n d t h e
s w o p is w h a t th e e x p e r t s a n d y o u r s e l f r e f e r t o a s t h e
20

A D V PA U L J O S E P H P R E TO R I U S S C : Th e y a r e c a l le d – a D e l ta .
A D V PA U L J O S E P H P R E TO R I U S S C : A D e l t a a n d w e w i ll c o m e to t h a t
la t e r i n g r a p h i c f o r m .
c o m p le t e n e s s .

B u t l e t u s j u s t c l a r i fy f o r t h e s a k e o f

I f m a r k e t r a t e s m o v e in f a v o u r o f th e c o u n te r p a r ty

N e d b a n k t h e n it m a k e s a p r o fi t th e r e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S S C : O r i t p r o f it s p u t i t th a t w a y
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : Th e r e is a s e c o n d s o u r c e o f g a i n
f o r a n i n s t it u ti o n s u c h a s Tr a n s n e t t h e c o u n t e r p a r ty a n d th a t is t h e
s o u r c e o f g a i n t o w h ic h y o u h a v e j u s t n o w r e fe r r e d . B e c a u s e o u t i n t h e
m a r k e t N e d b a n k w o u l d b l o w n m o n e y a t a f i x e d r a t e o f s a y 1 2 % c o r r e c t?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E T O R I U S S C :

B u t h e r e i t is p a y i n g t h e f ix e d

r a te a t a n e g o t ia t e d a m o u n t o f – o r i t is n o t i t is b e i n g p a i d a fi x e d r a t e
10

b y Tr a n s n e t a t 1 3 % a n d t h a t d i ff e r e n c e b e t w e e n 1 2 a n d 1 3 is a n a d d e d
s o u r c e o f g a i n f o r t h e c o u n t e r p a r ty ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y.

I a m n o t s u r e i f t h a t is

c le a r i f y o u w a n t u s t o …
C H A I R P E R S O N : I t h i n k i t is c le a r b u t I w a n t e d t o c l a r i f y in th e c o n t e x t
o f th e r e f e r e n c e t o a d e a le r. I n t h is t r a n s a c ti o n b e t w e e n Tr a n s n e t a n d
N e d b a n k w h o w o u l d b e th e d e a l e r ?
D R J O N ATH A N Z O R A H B L O O M : C h a ir t h e – i n t h is p a r ti c u l a r c a s e f o r
t h e c lu b l o a n b e c a u s e th a t is e s s e n ti a l ly w h a t w e ta lk in g a b o u t .
20

Th e

c o u n t e r – t h e o n e c o u n t e r p a r ty w a s Tr a n s n e t th e o th e r c o u n te r p a r ty
w a s N e d b a n k a s w e k n o w a n d R e g i m e n ts w a s t h e e x e - w h a t is c a l le d
t h e e x e c u ti n g a g e n t . I n o th e r w o r d th e p a r ty t h a t d o e s th e tr a d e s . I n
o th e r w o r d s a c t u a ll y e x e c u t e s t h e tr a n s a c t io n o r t h e s w o p e v e r y
q u a r t e r.

B u t I t h i n k i t is i m p o r ta n t t o a ls o n o te t h a t e i t h e r o f t h e

c o u n t e r p a r ti e s c a n a ls o b e t h e e x e c u t in g a g e n t. I t is n o t n e c e s s a r y f o r

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05 JUNE 2019 – DAY 106
a n e x t e r n a l p a r ty t o b e a b l e t o d o t h e ty p e s o f s w o p s t h a t w e a r e
r e fe r r i n g t o n o w b e c a u s e t h e s e a r e a s w e w il l s e e la t e r a s w e l l t h e s e
a r e c a ll e d v a n il l a s w o p s . I t is a ls o a t e r m t h a t i s u s e d in t h e in d u s tr y i n
o th e r w o r d s t o b e p u t i t i n – t o s i m p l i fy C h a ir i t i s s t o c k s ta n d a r d t h a t
a n y b o d y – i t i s n o t – t h e r e is n o th i n g u n t o w a r d a b o u t it .

I t is a v e r y

s tr a ig h t fo r w a r d t r a n s a c t io n .
CHAIRPERSON: There are no special features.
D R J O N AT H A N Z O R A H B L O O M : S o r r y.
CHAIRPERSON: So to speak, ja.
10

D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : O k a y, a lr ig h t .
A D V PA U L J O S E P H P R E TO R I U S S C : A n d y o u h a v e s t a t e d e a r l ie r a n d
y o u w i ll r e p e a t t o d a y t h a t Tr a n s n e t Tr e a s u r y h a d c a p a c i ty.

W a s it s

c a p a c i ty s u ff ic i e n t e n o u g h t o e x e c u t e t h e s e t r a d e s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is – th a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S

SC:

So

the

appointment

of

R e g i m e n t s a s e x e c u ti n g a g e n c y w a s t h a t n e c e s s a r y i n o r d e r fo r t h e s e
s w a p s t o b e e x e c u te d ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir.
20

CHAIRPERSON:

A t a p r a c ti c a l l e v e l e a r l i e r o n y o u s a i d t h a t - in

r e s p o n s e t o o n e o f Mr P r e t o r iu s ’ q u e s t io n s – th e r e is n o a c t u a l
payment.

I a s s u m e t h a t w h a t y o u m e a n t w a s th e r e is n o a c t u a l

p a y m e n t d u r i n g a p a r ti c u l a r t i m e b u t a t a la t e r s ta g e t h e n th e r e w o u l d
b e o r – o r a r e y o u a b l e t o c la r i fy t h a t m o r e ?
D R J O N AT H A N Z O R A H B L O O M : I c a n – I c a n C h a ir. W h a t is – w h a t i t

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05 JUNE 2019 – DAY 106
m e a n s is i n t h e o r y t h e o n e p a r ty w o u l d p a y a n a m o u n t o f m o n e y b a s e d
o n a fi x e d r a te t o th e o th e r p a r ty a n d t h e o th e r p a r t y i n th e o r y w o u l d
p a y a n a m o u n t o f m o n e y b a s e d o n th e fl o a t i n g r a t e t o t h e o t h e r
c o u n t e r p a r ty. S o i n s te a d o f th e m b o t h w r i ti n g o u t a c h e q u e t h e o n e t o
t h e o t h e r a n d t h e o t h e r – a n d v ic e v e r s a t h e y w o u ld l o o k a t w h a t t h e
t w o a m o u n t s w e r e b a s e d o n th e fi x e d r a t e a n d b a s e d o n th e fl o a t i n g
r a te a n d t h e n ( in t e r v e n e s ) .
C H A I R P E R S O N : T h e o n e w h o is s u p p o s e d to p a y th e d i ff e r e n c e p a y s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
10

CHAIRPERSON:

S o o n ly o n e p a y s a n d t h a t is t h e o n e w h o is s o t o

s p e a k p r e ju d i c e d b y th e - t h e in t e r e s t r a t e a t t h e t i m e ?
D R J O N AT H A N Z O R A H B L O O M : Th a t is c o r r e c t C h a ir. T h e r e c a n o n l y
b e o n e w i n n e r.
C H A I R P E R S O N : T h e r e c a n o n ly b e o n e w i n n e r ?
D R J O N AT H A N Z O R A H B L O O M : Ye s .
C H A I R P E R S O N : O k a y. O k a y b u t h o w – w h a t is t h e fr e q u e n c y o f t h o s e
p a y m e n t s d u r in g th a t p e r i o d o f t h e a r r a n g e m e n t?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir i t d e p e n d s o n th e a g r e e m e n t

a n d th e – t h e s w a p a g r e e m e n t – a n d i n t h i s p a r ti c u la r c a s e i t i s
20

q u a r t e r l y. S o e v e r q u a r t e r a …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : A s w a p t r a n s a c ti o n o c c u r s .
CHAIRPERSON:

O h , b u t fo r a ll i n te n ts a n d p u r p o s e s i t c a n b e

w h a t e v e r th e p a r t ie s a g r e e u p o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.

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05 JUNE 2019 – DAY 106
CHAIRPERSON:

Ye s , o k a y.

N o w a s w a p a r r a n g e m e n t c a n n o t e x is t

w i t h o u t a n o th e r a r r a n g e m e n t. I n t h i s c a s e N e d b a n k a n d Tr a n s n e t t h e i r
– th e i r s w a p a r r a n g e m e n t n e e d e d th e a r r a n g e m e n t o f t h e c o n s o r t iu m
w i t h Tr a n s n e t t o b e t h e ir fir s t . Is th a t r i g h t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir. In o t h e r w o r d s
t h e lo a n .
C H A I R P E R S O N : J a . T h e o n e c a n e x is t w it h o u t th e o t h e r b u t th e o t h e r
c a n n o t e x i s t w i t h o u t t h e fi r s t o n e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
10

CHAIRPERSON:

O k a y.

N o w o n c e Tr a n s n e t h a d c o n c l u d e d t h e l o a n

a g r e e m e n t w i t h t h e c o n s o r ti u m a n d i t h a d p r o c e e d e d t o c o n c l u d e t h e
s w a p a r r a n g e m e n t w it h N e d b a n k w h a t w a s t h e r e fo r R e g i m e n ts t o d o
a ft e r t h a t?

W a s th e r e a n y t h i n g f o r R e g i m e n ts t o c o n ti n u e d o i n g a f te r

t h e t w o a r r a n g e m e n ts h a d b e e n c o n c l u d e d ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir.
C H A I R P E R S O N : O k a y.
D R J O N AT H A N Z O R A H B L O O M : S o i n o t h e r w o r d s – e x c e p t d e p e n d i n g
o n h o w R e g i m e n ts – i f R e g i m e n ts w e r e d o i n g t h e e x e c u ti o n o f t h e
s w a p s i n o th e r w o r d s t h e y w e r e t h e e x e c u ti n g a g e n t. T h e n t h e y w o u ld
20

d o t h a t s w a p e v e r y q u a r te r.
CHAIRPERSON: Oh.
D R J O N AT H A N Z O R A H B L O O M : S o i n o t h e r w o r d s t h e y w o u l d r e m a i n
in v o lv e d i n o r d e r a s t h e – a s th e p a r ty d o i n g t h e tr a d e . T h e y w o u l d b e
in v o lv e d in t h a t f o r th e d u r a ti o n o f t h e a g r e e m e n t .
CHAIRPERSON:

Oh.

S o t h e e x e c u t io n t h a t y o u a r e ta lk in g a b o u t i s

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05 JUNE 2019 – DAY 106
t h e e x e c u ti o n a t t h e ti m e o f th e c o n c lu s i o n o f t h e a r r a n g e m e n t e x c e p t
f o r t h e p a y m e n ts in t e r v a l – i n t e r m i t te n t p a y m e n ts ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : O k a y, a lr i g h t a n d t h e n t h e y g e t s o m e t h i n g e a c h t i m e
t h e y d o t h e i r r o le t o p l a y ?
D R J O N AT H A N Z O R A H B L O O M :

Th a t is c o r r e c t C h a ir.

Every swap -

e v e r y tr a d e o r e v e r y s w a p t h a t t h e y d o …
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : T h e y w o u l d g e t a p e r c e n t a g e .
10

C H A I R P E R S O N : Ye s . L i k e a c o m m is s i o n ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : O k a y, th a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C :

W e l l th e y w o u l d d o t h e m a t h s

e v e r y t h r e e m o n th s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d o b v i o u s l y Tr a n s n e t w o u l d

c h e c k a n d it s e l f d o th e m a t h s ?
D R J O N AT H A N Z O R A H B L O O M : Ye s . I n o th e r w o r d s …
A D V PA U L J O S E P H P R E TO R I U S S C :
20

And so would Nedbank.

They

w o u ld n o t ju s t a c c e p t a t f a c e v a l u e w h a t R e g i m e n ts te ll t h e m s u r e ly.
D R J O N AT H A N Z O R A H B L O O M :

W e l l in – i n t h i s p a r tic u la r in s t a n c e

C h a ir t h e fe e t h a t w a s p a id to R e g i m e n ts w a s in c l u d e d in th e r a t e t h a t
Tr a n s n e t p a i d N e d b a n k . I n o t h e r w o r d s i t w a s n o t a – it w a s n o t a fe e
o r a c o m m i s s i o n t h a t Tr a n s n e t p a i d R e g i m e n t s . It w o u ld – b e c a u s e t h e
f e e w a s in c l u d e d i n t h e - w h a t is c a ll e d t h e y i e l d o r t h e r a t e i t w o u ld

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05 JUNE 2019 – DAY 106
h a v e – th e y w o u l d h a v e b e e n p a i d b y s o m e o t h e r p a r t y.
CHAIRPERSON: So …
A D V PA U L J O S E P H P R E TO R I U S S C : B u t u l ti m a t e ly b y Tr a n s n e t?
D R J O N AT H A N Z O R A H B L O O M :

U lt i m a t e ly b y Tr a n s n e t th r o u g h t h e

r a te .
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s .
D R J O N AT H A N Z O R A H B L O O M : B u t p r a c ti c a ll y o r p h y s ic a l ly r e c e iv i n g
p a y m e n t w o u l d h a v e b e e n fr o m s o m e b o d y e ls e .
A D V PA U L J O S E P H P R E TO R I U S S C :
10

A n d t h a t w a s – t h a t f e e fo r

R e g i m e n t s - a s I u n d e r s t a n d y o u r e v id e n c e – w a s i n c l u d e d in t h e fix e d
r a te p a i d a s p a r t o f t h e s w a p a s o p p o s e d t o t h e m id m a r k e t r a t e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

R ig h t a n d y o u s a y th a t th a t

m a r g in – t h e d e l t a a s y o u r e fe r t o i t – b e t w e e n t h e m id m a r k e t r a t e a n d
t h e f ix e d r a t e a c t u a ll y i n c u r r e d b y Tr a n s n e t i n t h e s w a p w a s u n u s u a l ly
high?
D R J O N AT H A N Z O R A H B L O O M :

T h a t i s c o r r e c t C h a ir a n d i t in c l u d e d

the Regiments fee.
C H A I R P E R S O N : Ye s a n d th e r o l e o f R e g i m e n ts o r a n y e n ti ty p l a y i n g a
20

s i m il a r r o l e in r e g a r d t o a s w a p d o e s i t i n c l u d e c o l le c t i n g t h e m o n e y
fr o m w h o m e v e r i s s u p p o s e d to p a y d u r in g t h e i n t e r v a ls a n d t h e n
h a n d i n g it o v e r t o t h e o n e w h o is s u p p o s e d t o – t o r e c e i v e th e p a y m e n t
o r d o th e t w o p a r t ie s d o t h e a r r a n g e m e n t p a y e a c h o t h e r d ir e c t ly o r
w h o e v e r n e e d s to p a y d ir e c tl y o r d o e s i t g o v i a R e g i m e n t s ?
D R J O N AT H A N Z O R A H B L O O M : I t is - C h a ir i t i s m e r e l y a n e l e c tr o n ic

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05 JUNE 2019 – DAY 106
– i t is a n e l e c tr o n ic t r a n s a c t io n w h e r e t h e t w o p a r ti e s – w h e r e t h e
m o n e y i s n e tt e d o ff b u t e s s e n ti a l ly w h a t i t – w h a t it c o m e s d o w n t o is
t h a t N e d b a n k a s th e c o u n t e r p a r ty in t h i s p a r ti c u la r i n s t a n c e w o u l d i s s u e
c o n fir m a t io n

n o t ic e s

of

th e

tr a n s a c ti o n

and

th a t

–

and

th o s e

c o n fir m a t io n s w o u l d t h e n b e c a p t u r e d b y Tr a n s n e t ’s d e a li n g r o o m a s …
C H A I R P E R S O N : Ye s .
M R J O N AT H A N Z O R A H B L O O M :

A s p r o o f t h a t t h e tr a n s a c ti o n h a s

been concluded.
C H A I R P E R S O N : Ye s .
10

D R J O N AT H A N Z O R A H B L O O M :

So

the

fl o w

of

funds

is

–

is

e s s e n ti a l ly a n e l e c tr o n ic c a lc u l a ti o n e x e r c i s e .
C H A I R P E R S O N : W e l l D r B l o o m I t h in k I d id t e ll y o u th a t m y k n o w l e d g e
o f s o m e o f t h e s e t e c h n o lo g i c a l a d v a n c e s is li m i t e d .

S o I a m – I s ti ll

think of actual payment.
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir y o u a r e d o in g v e r y w e l l.
CHAIRPERSON:

B u t – b u t y o u r a n s w e r s e e m s to s u g g e s t t h a t t h e

p a y m e n t s d o n o t – d o n o t g o v i a R e g i m e n t s . T h e y g o fr o m N e d b a n k t o
Tr a n s n e t d ir e c t ly e l e c tr o n i c a ll y a n d v ic e v e r s a d e p e n d i n g o n w h o is
s u p p o s e d to p a y ?
20

D R J O N AT H A N Z O R A H B L O O M :
o n t h e s it u a ti o n .

C h a ir in t h is p a r ti c u l a r – i t d e p e n d s

I n th is p a r ti c u l a r i n s ta n c e I a m u n s u r e h o w t h o s e

p a y m e n t s w e r e a ff e c t e d .

In other words if – if it was done via

R e g i m e n t s o r n o t I a m j u s t a w a r e o f t h e f a c t th a t th e fe e f o r R e g i m e n t s
w a s i n c lu d e d in t h e r a t e p a i d b y Tr a n s n e t .
C H A I R P E R S O N : O k a y. W e l l p a r t o f t h e r e a s o n w h y I w a s a s k in g w a s

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05 JUNE 2019 – DAY 106
t o tr y a n d p l a c e t h e r o l e o f a n e n ti ty l ik e R e g i m e n ts i n t o s o m e o t h e r
k in d o f r o le t h a t o n e m a y b e m u c h m o r e u s e d t o l ik e w h e t h e r i t is li k e a n
e s t a t e a g e n t t h a t c o l le c t s r e n t a n d p a y s t h e la n d l o r d a n d s o o n .

So

t h a t is w h a t I w a s tr y i n g to – to fi g u r e o u t b u t I th i n k fr o m y o u r a n s w e r I
c a n ta k e i t t h a t y o u d o n o t u n d e r s t a n d t h e s e – t h e r o l e o f a n e n ti ty s u c h
a s R e g i m e n ts to n e c e s s a r ily i n c l u d e t h a t a n y p a y m e n t t h a t m u s t b e
m a d e e it h e r to Tr a n s n e t o r N e d b a n k h a s to g o v i a R e g i m e n ts ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : J a , o k a y.
10

A D V PA U L J O S E P H P R E TO R I U S S C :

W e w i ll c o m e b a c k t o t h e s e

c o n c e p t s i n t h e c o u r s e o f y o u r e v id e n c e a n d to t h e e x t e n t t h a t f u r th e r
e x p l a n a t io n is r e q u ir e d i n r e la t io n t o a n y s p e c ia li s t c o n c e p t .

W e w i ll

d e a l w i t h i t t h e n b u t fo r t h e m o m e n t w e c a n c l o s e o ff t h is p a r t o f y o u r
e v i d e n c e j u s t t o s u m m a r is e to s a y t h a t w e a r e d e a l in g h e r e w i th a
p a r t ic u l a r r i s k m i t ig a ti o n o r r is k a v o i d a n c e f in a n c ia l in s tr u m e n t i n o th e r
w o r d s a h e d g e o f a p a r tic u la r n a tu r e t h a t i s a n i n t e r e s t r a te s w a p .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d t h a t is p a r tic u la r ly i m p o r ta n t
w h e r e th e l o a n is a d o m e s t ic l o a n ?
20

D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

R ig h t .

Now there are other

h e d g i n g in s t r u m e n ts o r r is k p r o t e c ti o n – p r o te c ti o n a g a i n s t fi n a n c i a l
r is k i n s tr u m e n t s – h e d g in g in s tr u m e n t s a n d y o u d e a l w it h t h o s e o n p a g e
24.

N o w w e a r e n o t g o in g t o g o i n to a n y d e ta il b u t t o s a y f ir s tl y i n

r e l a ti o n to t h e C h in a D e v e l o p m e n t B a n k l o a n i t w a s a c r o s s b o r d e r l o a n

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05 JUNE 2019 – DAY 106
in v o lv i n g e x c h a n g e r a t e s w h ic h fl u c t u a t e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

Is t h e r e a h e d g in g i n s tr u m e n t

t h a t is u s e d t o p r o te c t a g a in s t a n y l o s s t h a t m ig h t b e i n c u r r e d b y a n
a d v e r s e m o v e m e n t in e x c h a n g e r a te s ?
D R J O N AT H A N Z O R A H B L O O M :

Th a t is c o r r e c t C h a ir.

I t i s c a ll e d a

C r o s s C u r r e n c y S w a p a n d i t – a n d i t – t h e i n te n ti o n o f t h a t i s to
e s p e c i a l ly i n o u r p a r t ic u l a r c a s e to c a te r f o r v o la t il it y in t h e R a n d a s w e
h a v e s e e n . S o – b e c a u s e a s w e h a v e – a s w e d i s c u s s e d p r e v i o u s ly it
10

is n e c e s s a r y to r e p a y t h e – th e lo a n i n th e c u r r e n c y w h i c h i t r e c e iv e d i t .
S o t o – to h e d g e a g a i n s t th a t i t c o s t s y o u m o n e y b u t i t t a k e s t h e – i t
t a k e s th e l i q u id i ty r is k – i f I c a n p u t i t t h a t w a y – o u t o f th e – o u t o f t h e
e q u a ti o n b y e n t e r in g in t o s u c h a n a g r e e m e n t.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d y o u a ls o e n t e r i n to it w it h a
c o u n t e r p a r ty. I t i s a s e p a r a t e a r r a n g e m e n t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

So where I borrow money from

t h e C h i n a D e v e l o p m e n t B a n k I b o r r o w i t i n D o ll a r s .

I have got to

e x c h a n g e i t i n to R a n d s a n d I h a v e g o t to r e p a y i t a c r o s s th e b o r d e r i n
20

D o ll a r s a s w e l l?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

So there are interests – I mean

– th e r e a r e e x c h a n g e r a t e o n b o th s i d e s o f th e e q u a ti o n o n r e c e ip t a n d
o n r e p a y m e n t?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S

SC:

And

I

can

e n te r

into

an

a r r a n g e m e n t w it h a t h ir d p a r ty – a c o u n t e r p a r t y – i n o r d e r t o p r o t e c t
m y s e l f a g a in s t a r i s k o f e x c h a n g e r a te s m o v in g a d v e r s e t o m y i n t e r e s t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y. T h a t is e n o u g h I th in k o n
Cross Currency Swaps.

T h e r e a r e a l s o c r e d i t d e fa u l t s w a p s a n d y o u

m e n ti o n e d t w o r is k s i n y o u r e v i d e n c e la s t w e e k t o th e C h a ir. T h e o n e
is w h e r e t h e b o r r o w e r – Tr a n s n e t – c a n n o t p a y b e c a u s e o f fa c to r s d u e
t o i ts i n t e r n a l f in a n c in g ?
10

D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d th e r e a r e r i s k s a s s o c i a te d

w i t h t h e f a i lu r e to p a y b e c a u s e o f e x te r n a l f a c t o r s s u c h a s a c o ll a p s e in
the economy or a downgrade?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y.

Would you explain how

Ye s C h a ir.

T h e - Tr a n s n e t e n t e r e d

t h o s e r is k s a r e d e a lt w i t h ?
D R J O N AT H A N Z O R A H B L O O M :

in t o a n a g r e e m e n t fo r a – i f w e c a n c a ll i t - a C C D S w h ic h i s t h e
C o n ti n g e n t C r e d i t D e fa u lt S w a p .
20

A D V PA U L J O S E P H P R E TO R I U S S C : W h i c h i s t h a t?
D R J O N AT H A N Z O R A H B L O O M :

Th a t i s th e s w a p th a t y o u j u s t

r e fe r r e d t o .
A D V PA U L J O S E P H P R E TO R I U S S C : N o w h a t i s t h e r is k – s o r r y.
D R J O N AT H A N Z O R A H B L O O M :
r is k i s t w o f o ld .

O h t h e r is k – s o r r y.

Th e r is k – t h e

Th e f ir s t o n e is th e – t o c o v e r y o u r s e l f a g a i n s t th e

Page 27 of 143

05 JUNE 2019 – DAY 106
in a b i li ty o r t h e d e f a u l t o f n o t b e e n a b le t o p a y i n te r e s t o n y o u r lo a n .
T h a t is t h e fir s t p o r t io n o f i t a n d t h e n li n k e d to t h a t w o u ld b e a s i t u a t io n
w h e r e c ir c u m s t a n c e s b e y o n d y o u r c o n tr o l a s a – a s a c o m p a n y p r e v e n t
y o u fr o m a c t u a l ly m a k i n g g o o d o n y o u r r e q u ir e m e n ts i n t e r m s o f t h e
a g r e e m e n t . S o it is – i t i s – i n o th e r w o r d s it is a c t u a l ly t a k in g o u t a n
a d d it i o n a l p o r ti o n o f r i s k to c o v e r t h a t e v e n tu a l i ty s h o u ld i t h a p p e n .
A D V PA U L J O S E P H P R E TO R I U S S C :

So if the adverse event against

w h ic h y o u a r e s e e k i n g p r o t e c ti o n o r in s u r a n c e o c c u r s w h a t h a p p e n s ?
D R J O N AT H A N Z O R A H B L O O M :
10

W e l l th e n t h e o th e r p a r ty t h e p a r ty

t h a t y o u h a v e e n t e r e d in t o t h e s w a p w i t h …
A D V PA U L J O S E P H P R E TO R I U S S C : Th e c o u n t e r p a r t y ?
D R J O N AT H A N Z O R A H B L O O M :

Th e c o u n t e r p a r t y - i f th a t e v e n t

occurs would pay you.
A D V PA U L J O S E P H P R E TO R I U S S C : Th e fu ll a m o u n t o f t h e l o a n ?
D R J O N AT H A N Z O R A H B L O O M :

W e l l t h e – d e p e n d in g o n w h a t t h e

a g r e e m e n t is a n d w h a t th e tr a n c h e s a r e .
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y. To s u m m a r is e t h e n w h e r e
o n e b o r r o w s m o n e y a c r o s s t h e b o r d e r a n d o n e f a c e s a r is k b e c a u s e o f
e x c h a n g e r a t e fl u c t u a t i o n s o n e c a n e n t e r in t o a C r o s s C u r r e n c y S w a p
20

w h ic h i s a fi n a n c i a l i n s tr u m e n t e n t e r e d i n t o w i th a c o u n t e r p a r t y t o
m i ti g a te a g a in s t r is k ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d s i m i la r ly w h e r e y o u w is h to
e n s u r e a g a i n s t y o u r s e lf b e in g u n a b le t o p a y in t e r e s t r a t e s o r b e i n g
u n a b l e t o p a y b e c a u s e o f e x t e r n a l m a r k e t f a c to r s y o u c a n a ls o e n t e r

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05 JUNE 2019 – DAY 106
in t o a fi n a n c i a l in s tr u m e n t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d t h o s e a r e c a ll e d c r e d i t

d e f a u l t s w a p s o r C o n t in g e n t C r e d i t D e f a u l t S w a p s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d t h e la t t e r i s e x t e r n a l to

Tr a n s n e t . T h e fo r m e r is in t e r n a l to Tr a n s n e t?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :
10

B u t w e n e e d n o t g o i n to a n y

d e t a i l o n t h o s e b e c a u s e w e a r e g o i n g t o c o n c e n t r a t e o n t h e in t e r e s t
r a te s w a p s . A m I c o r r e c t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d y o u m a k e th a t p o i n t o n p a g e
25. What do you say there?
D R J O N AT H A N Z O R A H B L O O M :
a b o u t C h a ir.

I t i s e s s e n ti a l ly w h a t w e h a v e b e e n

I t i s t h e a g r e e m e n t b e t w e e n t w o p a r ti e s in w h ic h o n e

s tr e a m o f f u t u r e in t e r e s t p a y m e n ts i s e x c h a n g e d f o r a n o t h e r b a s e d o n
the principal amount.

S o i n o t h e r w o r d s a s w e h a v e s a i d it i s

e x c h a n g in g a f lo a ti n g r a t e a m o u n t r e l a te d t o t h e l o a n fo r a fi x e d r a t e
20

t h e d i ff e r e n c e a s w e s a i d is p a i d t o e i t h e r o f t h e c o u n te r p a r ti e s .
A D V PA U L J O S E P H P R E TO R I U S S C :

A l r ig h t .

What do you say on

p a g e 2 6 in r e l a ti o n t o C r o s s C u r r e n c y S w a p s ? N o w t h o s e w e r e a c t u a ll y
entered into - were they?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y.

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W h a t is t h e p o i n t y o u

05 JUNE 2019 – DAY 106
m a k e o n p a g e 2 6 fr o m e x a m i n i n g t h e Tr a n s n e t r e c o r d s ?
D R J O N AT H A N Z O R A H B L O O M : C h a ir i n t e r m s o f t h e p a y m e n t o f f e e s
r e l a t e d t o t h e – t h e C r o s s C u r r e n c y S w a p s a n a m o u n t o f R 7 .5 m i ll i o n
w a s p a i d b y Tr a n s n e t t o R e g i m e n ts f o r s tr u c t u r i n g a n d a r r a n g i n g t h e –
t h e C C S’ – in o t h e r w o r d s th e C r o s s C u r r e n c y S w a p s - b u t w h a t is - a n d
ju s t n o t e th a t R e g i m e n ts w a s t h e S u p p ly D e v e l o p m e n t p a r t n e r o f J P
M o r g a n . I n o t h e r w o r d s t h e y w o r k e d t o g e t h e r b u t w h a t is i n te r e s t i n g J P
M o r g a n w a s a p p o in t e d to d o ( in d i s ti n c t) o r t o c o n d u c t t h e s e p a r t ic u l a r
tr a n s a c ti o n s . S o i t is u n c l e a r w h y R e g i m e n t s w a s p a i d R 7 . 5 m i ll io n b y
10

Tr a n s n e t w h e r e i f t h e y w e r e w o r k i n g o n t h e tr a n s a c ti o n a s J P M o r g a n
S u p p ly D e v e l o p m e n t p a r t n e r th e n t h e y w o u l d b e p a id b y J P M o r g a n b u t
t h e y is s u e d a n in v o ic e t o Tr a n s n e t f o r a n a m o u n t R 7 . 5 m i ll io n b u t C h a ir
w h a t is – j u s t t o c r e a te t h e n e c e s s a r y c o n t e x t – la s t – w h e n w e m e t l a s t
ti m e o n Fr i d a y I i n d ic a te d th e r e w a s a n a m o u n t o f 1 6 6 m i ll i o n t h a t w a s
a p p lic a b l e t o s o c a ll e d s u c c e s s f e e s p a id t o R e g i m e n t s a n d I f o c u s s e d
s p e c i f ic a l ly o n 1 5 2 m i ll io n o f th a t 1 6 6 m i lli o n a n d e x p la in e d h o w t h a t
w a s a ll d o n e a n d w h e r e t h a t n u m b e r c a m e f r o m . N o w i n c lu d e d i n t h a t
1 6 6 m il li o n p a i d b y Tr a n s n e t t o R e g i m e n t s w a s t h is 7 .5 m il li o n .

S o it

could never have – Regiments could never have been paid that amount
20

b y Tr a n s n e t fo r w o r k t h a t t h e y d i d o n t h i s p a r ti c u l a r tr a n s a c ti o n . S o i t
is – I h a v e i n d ic a te d i t is n o th i n g e ls e b u t – b u t fr a u d . I t is u n j u s t if i e d
and unwarranted.
CHAIRPERSON:

D o – d o w e k n o w w h e t h e r a s a m a tt e r o f fa c t J P

M o r g a n p e r f o r m e d t h e j o b – th is – t h e j o b t h a t R e g i m e n t s w a s p a i d
R 7 . 5 m il li o n f o r ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M :

C h a ir t h e y w o u l d – t h e y d id – t h e y

were appointed to pay the Cross Currency Swaps …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : A n d t h e r e w e r e 2 5 d r a w d o w n s …
CHAIRPERSON: Huh-uh.
D R J O N AT H A N Z O R A H B L O O M : A n d t h i s r e l a t e s to t h e C D B l o a n .
CHAIRPERSON: Huh-uh.
D R J O N AT H A N Z O R A H B L O O M :

There were 25 drawdowns on that

lo a n …
10

CHAIRPERSON: Huh-uh.
D R J O N AT H A N Z O R A H B L O O M : A n d t h e y w o u l d h a v e d o n e – a t e a c h
draw down …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

T h e y w o u ld h a v e a p p li e d a C r o s s

Currency Swap.
C H A I R P E R S O N : H m , h m . W e ll I – y o u s a y t h e y w o u l d h a v e a n d I a m
tr y i n g t o l o o k a t w o u l d h a v e a n d w h e t h e r t h e y a c t u a l ly d i d .
D R J O N AT H A N Z O R A H B L O O M : C h a i r I g iv e n t h a t …
CHAIRPERSON:
20

Ar e y o u in a p o s i ti o n to s a y y e s a s a m a t te r o f fa c t

t h e y d i d i t o r I w o u ld – o r y o u a r e o n l y a b l e t o s a y I w o u ld h a v e
e x p e c te d th e m t o h a v e d o n e i t ?
D R J O N AT H A N Z O R A H B L O O M : C h a i r I d id n o t s e e t h e a g r e e m e n t s …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

W h ic h r e g u la t e th e C r o s s C u r r e n c y

S w a p s b e t w e e n Tr a n s n e t a n d J P M o r g a n p e r s e .

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05 JUNE 2019 – DAY 106
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : S o I – I c a n n o t s a y t h a t – t h a t i t d i d
happen …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : O r i t d i d n o t h a p p e n …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

B u t I a m in te r ms o f t h e d r a w d o w n s

…
C H A I R P E R S O N : Ye s .
10

D R J O N AT H A N Z O R A H B L O O M :

Tr a n s n e t e n t e r e d in t o a n a g r e e m e n t

t o a p p ly t h e s e s w a p s …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

A n d th e r e f o r e I w o u l d – I w o u l d

( in t e r v e n e s ) .
C H A I R P E R S O N : J P M o r g a n - i n t e r m s o f t h e a g r e e m e n t s w h ic h y o u d i d
s e e J P M o r g a n – th is – p e r f o r m i n g t h i s t a s k f e ll w i t h i n w h a t th e y w e r e
r e q u ir e d t o d o ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t .
CHAIRPERSON: That you are able to say?
20

D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : W h a t y o u c a n n o t s a y is w h e t h e r t h e y a c tu a lly d i d i t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : A n d t h a t m ig h t r e q u ir e s o m e o th e r – s o m e b o d y t o lo o k
m o r e c lo s e ly a n d t o w h e th e r th e y d i d i t b u t i f th e p a y m e n t th a t t h e y
w e r e p a i d – J P M o r g a n – s o th e p a y m e n t t h a t t h e y - t h a t w a s m a d e b y

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05 JUNE 2019 – DAY 106
Tr a n s n e t to t h e m s h o u ld g iv e a n i n d i c a t io n o r e v e n t h e ir i n v o ic e s w o u l d
g iv e a n in d ic a ti o n w h e th e r th e y a c t u a l ly d i d t h a t p a r t o f t h e j o b a n d
t h e n i f t h e y d i d n o t d o i t – i t m a y b e t h a t th e n i t m i g h t n o t b e fr a u d
a g a in s t R e g i m e n t s i f t h e y a c t u a ll y d i d th e j o b b u t i f J P M o r g a n d i d th e
jo b a n d R e g i m e n ts d id n o t d o t h a t j o b b e c a u s e it h a d a lr e a d y b e e n
d o n e t h e n i t w o u l d b e fr a u d . I s t h a t r i g h t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : J a , o k a y.
A D V PA U L J O S E P H P R E TO R I U S S C :
10

L e t u s tr y a n d u n d e r s t a n d t h e

e s s e n c e o f w h a t y o u a r e s a y in g h e r e w i t h r e fe r e n c e t o t h e c o n t e n t o f
page 26.

In r e l a ti o n t o th e C h i n a D e v e l o p m e n t B a n k l o a n i t w a s

d e e m e d n e c e s s a r y b y Tr a n s n e t t o e n t e r i n t o a r is k a v o i d a n c e o r a r is k
p r o t e c t io n h e d g i n g m e c h a n is m . C o r r e c t?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t ?
A D V PA U L J O S E P H P R E TO R I U S

SC:

That

was

c a l le d

a

Cross

Currency Swap. Correct?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : R e g i m e n ts w a s n o t a p p o i n t e d t o
d o a n y th i n g in r e la t io n to t h e C r o s s C u r r e n c y S w a p ?
20

D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : J P M o r g a n w a s a p p o in t e d to d o
that work?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

Yo u s a y t h a t d e s p i te t h e fa c t

t h a t i t w a s n o t a p p o i n te d t o d o t h e C r o s s C u r r e n c y S w a p i t n e v e r t h e l e s s

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05 JUNE 2019 – DAY 106
in v o ic e d Tr a n s n e t f o r R 7 . 5 m i lli o n a n d s a id I h e l p e d m y p a r t n e r to d o
it ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d y o u s a y t h a t th a t in y o u r

o p i n i o n a n d u n d e r s ta n d i n g is u n j u s t if i e d a n d u n w a r r a n t e d a n d a m o u n ts
t o fr a u d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

S o a r e y o u s a y in g t h e n th a t a s

f a r a s y o u r k n o w l e d g e g o e s R e g i m e n ts w a s n o t a p p o i n te d t o n o r
10

e n t i tl e d t o is s u e a n in v o ic e fo r R 7 .5 m i lli o n ?
D R J O N AT H A N Z O R A H B L O O M : N o t to Tr a n s n e t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : R ig h t. I t c o u ld h a v e a n i n te r n a l
a r r a n g e m e n t w i th R e g i m e n ts – s o r r y – a n in t e r n a l a r r a n g e m e n t w i th J P
M o r g a n i ts p a r t n e r ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d t h a t – b u t t h a t in t e r n a l

a r r a n g e m e n t w a s a n i n te r n a l a r r a n g e m e n t b e t w e e n R e g i m e n ts a n d J P
M o r g a n o r w o u l d h a v e b e e n c e r t a i n l y n o b a s is f o r p la c i n g t h a t l ia b il it y
in t h e h a n d o f Tr a n s n e t . I s t h a t w h a t y o u a r e s a y i n g ?
20

D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
CHAIRPERSON:

I u n d e r s ta n d p a r t o f w h a t y o u a r e s a y i n g t o b e t h a t

R e g i m e n t s w a s n o t a p p o i n t e d t o d o – p e r f o r m t h is ta s k …
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : By Tr a n s n e t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.

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05 JUNE 2019 – DAY 106
CHAIRPERSON:

A n d b e f o r e y o u c a n p e r f o r m – i t c o u l d p e r fo r m t h is

t a s k it w o u l d h a v e h a d to b e a p p o in t e d a n d – a n d a l s o t o b e a b le t o p u t
in a n in v o ic e t o Tr a n s n e t .

I t – it c o u l d n o t p u t i n a n in v o ic e w i t h o u t

h a v i n g b e e n a p p o i n t e d u n l e s s it w a s j u s t s o m e fr a u d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : I f t h e r e w a s a n u n d e r ly in g a g r e e m e n t
…
C H A I R P E R S O N : Ye s .
10

D R J O N AT H A N Z O R A H B L O O M : O f s o r ts .
CHAIRPERSON: There was no underlying agreement.
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : T h e o n ly – t h e o n ly t h i n g t h a t w o u ld – w o u ld r e m a i n is
w h e t h e r f o r t h is k i n d o f th i n g t h e r e c o u l d b e a n y a p p o i n t m e n t o f
R e g i m e n t s th a t is n o t f o r m a l t o d o t h e jo b .

I w o u ld i m a g i n e .

So

whether somebody could say just please do this and put in an invoice
a n d w e w ill p a y y o u a n d t h e y a c t u a l ly d o t h e j o b . T h a t i s w h a t w e d o
n o t k n o w. Is th a t r i g h t?
D R J O N AT H A N Z O R A H B L O O M :
20

Th a t is c o r r e c t C h a ir a n d h o w th a t

r e l a t e s to S u p p ly C h a i n M a n a g e m e n t .
CHAIRPERSON: Ja, ja. So one does not expect that to – to happen.
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : J a b u t ju s t in c a s e i t h a p p e n e d a n d t h e y a c t u a l ly d id
t h e jo b t h e n - t h e n i t m ig h t n o t b e fr a u d a s s u c h b u t i t m i g h t b e
s o m e t h i n g e l s e b u t th a t – t h a t m i g h t n o t b e s o m e t h i n g t h a t y o u – y o u

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05 JUNE 2019 – DAY 106
w a n t t o s a y m u c h a b o u t. I d o n o t k n o w. I a m ju s t to – I a m w o r k in g i t
o u t in m y o w n m in d .
D R J O N AT H A N Z O R A H B L O O M : N o u n fo r t u n a te ly – y e s C h a ir y o u a r e
r ig h t .
C H A I R P E R S O N : Ye s , y e s .
D R J O N AT H A N Z O R A H B L O O M :

If

there

was

any

u n d e r ly i n g

agreement …
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : O r a s i d e a g r e e m e n t o r w h a t e v e r t h e
10

case …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : M a y b e f o r …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : T h i s t y p e o f w o r k I w a s n o t a w a r e o f
that and …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : I d id n o t s e e a n y t h i n g .
CHAIRPERSON: So if – if there was a genuine job that was done and
R e g i m e n t s – y o u k n o w - h a d d o n e t h e jo b a n d g e n u in e ly b e l ie v e d t h a t it

20

w a s e n ti t le d to p u t in a n i n v o ic e th a t w o u l d b e s o m e t h i n g e ls e b u t i n
the normal course of these types of – of jobs one expects that they
w o u ld h a v e b e e n fo r m a l ly a p p o i n te d i n o n e w a y o r a n o t h e r o r t h e r e
w o u ld b e a n a g r e e m e n t a n d i n th e a b s e n c e o f a n a g r e e m e n t th e y a r e
p u t t in g i n a n i n v o ic e f o r th is ty p e o f jo b . I t s e e m s v e r y s tr a n g e to u s e
m y t e r m – v e r y s tr a n g e - a n d y o u s a y i t m a y w e l l h a v e b e e n fr a u d ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
CHAIRPERSON:

O k a y, t h a n k y o u .

I do not know whether I have

h e l p e d to c l a r i fy M r Pr e t o r i u s o r w h e t h e r I h a v e c o m p o u n d it .
A D V PA U L J O S E P H P R E TO R I U S S C : N o , C h a ir. T h e – I w i ll d e a l w i t h
t h e is s u e s y o u h a v e r a is e d i n a m o m e n t b u t it d o e s s e e m t h a t i n t h e
fi n a l r e p o r t s o m e q u a l i fic a ti o n w il l b e n e c e s s a r y i n o r d e r t o m a k e i t
a c c u r a te a n d th e q u a li f ic a ti o n w o u l d b e t h e f o ll o w i n g D r B l o o m .

Are

y o u a w a r e h a v i n g b e e n g iv e n a c c e s s t o th e r e l e v a n t r e c o r d s th e
r e c o r d s w h ic h d e a l w i t h t h e s e is s u e s – t h e s e f i n a n c ia l tr a n s a c ti o n s
10

a b o u t w h i c h y o u a r e t e s t i fy i n g – a r e y o u a w a r e o f a n y a g r e e m e n t o r
w r i t t e n a r r a n g e m e n t o r v e r b a l a r r a n g e m e n t t h a t w o u ld j u s t i fy R e g i m e n ts
c h a r g i n g Tr a n s n e t f o r R 7 . 5 m i ll i o n ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y.
CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C : W o u l d y o u h a v e e x p e c t e d to fi n d
s u c h d o c u m e n t a ti o n in y o u r w o r k ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a i r n o t – n o t b e tw e e n Tr a n s n e t
and Regiments.

20

CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

I t w o u ld h a v e b e e n b e c a u s e J P

M o r g a n w e r e a p p o i n t e d . S o i f - t h a t w o u l d – i f – i f Tr a n s n e t s a i d th a t
t h e y a c t u a ll y d i d th e w o r k t h e n i t w o u l d h a v e b e e n i n a d d i ti o n t o w h a t
J P M o r g a n w e r e p o te n ti a l ly d o in g a n d t h e n s o m e fo r m o f a g r e e m e n t o r
a n a r r a n g e m e n t w o u l d h a v e b e e n r e d u c e d t o w r i ti n g a t th a t p o in t .

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S S C : B e t w e e n ?
D R J O N AT H A N Z O R A H B L O O M :

B e t w e e n Tr a n s n e t a n d R e g i m e n ts if

...
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s , n o b u t – s o r r y. W h a t I a m –
w h a t I a m a ll u d i n g t o is s o m e t h in g d i ff e r e n t .
D R J O N AT H A N Z O R A H B L O O M : O k a y.
A D V PA U L J O S E P H P R E TO R I U S S C :

In t h e v o l u m e o f d o c u m e n t a ti o n

a n d r e c o r d s th a t y o u e x a m i n e d h a d t h e r e b e e n s u c h a n a g r e e m e n t – a n
e x tr a a g r e e m e n t – b e tw e e n R e g i m e n ts a n d Tr a n s n e t a l b e i t s t r a n g e
10

w o u ld y o u h a v e c o m e a c r o s s i t?
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a ir. W e ll I w o u l d h a v e h o p e d
to have come across but I did not.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y.

S o s u b j e c t to

the

e x i s te n c e o f a s p e c ia l a r r a n g e m e n t b e t w e e n Tr a n s n e t a n d R e g i m e n t s
f o r t h e p a y m e n t o f R 7 . 5 mi ll i o n i n t h e a b s e n c e o f s u c h y o u w o u l d s ta n d
b y y o u r o p i n io n o n t h is p a g e ?
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.
A D V PA U L J O S E P H P R E TO R I U S S C :
20

I t is q u a li f ie d h o w e v e r t o t h e

e x t e n t t h a t t h e r e m a y b e s u c h a n a r r a n g e m e n t r e c o r d e d i n w r i t in g
e ls e w h e r e a n d t h a t w o u l d h a v e t o b e e x a m in e d a g a in s t d i ff e r e n t c r i t e r i a
s u c h a s p r o c u r e m e n t c r i te r i a a n d t h e li k e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S

SC:

But

as

I

u n d e r s ta n d

your

e v i d e n c e e v e n i f th e r e w a s s u c h a n a r r a n g e m e n t i t w o u l d b e s tr a n g e ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : W h y ?
D R J O N AT H A N Z O R A H B L O O M :

B e c a u s e R e g i m e n t s w a s t h e S u p p ly

D e v e l o p m e n t p a r tn e r o r t h e p a r tn e r in t h e – i n t h e tr a n s a c t i o n o r f o r
c o n d u c t in g

these

tr a n s a c ti o n s

of

JP

Morgan.

So

they

were

. . .( i n te r v e n t io n )
A D V PA U L J O S E P H P R E TO R I U S S C :

R e g i m e n ts w a s p a r t o f t h e J P

Morgan stable?
D R J O N AT H A N Z O R A H B L O O M : Ye s f o r a ll p u r p o s e s j a .
10

A D V PA U L J O S E P H P R E TO R I U S S C : Ye s , s o i f i t h a d d o n e a n y w o r k
f o r J P M o r g a n in e x e c u t i n g t h e s w o p s y o u w o u l d h a v e e x p e c t e d
arrangement to be between Regiments and JP Morgan.
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d y o u w o u ld n ’ t h a v e e x p e c te d
Tr a n s n e t t o fo o t th e b i ll ?
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

O f c o u r s e th e r e m a y e x is t

in f o r m a ti o n w h ic h e x p la i n s h o w i t c a m e a b o u t t h a t R e g i m e n t s w a s
in f o r m e d t h a t i t c o u l d b i ll Tr a n s n e t f o r 7 .5 m i ll io n r a n d a n d Tr a n s n e t
20

w o u ld

pay

but

that

evidence

w o u ld

e x is t

e ls e w h e r e

in

email

c o m m u n ic a ti o n s a n d th e l ik e .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s p o s s ib l e C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d t h e n y o u d e a l w i t h th e

c o n ti n g e n t c r e d i t d e f a u l t s w a p w h ic h is th e s w a p n e c e s s it a t e d to a v o i d
o r p r o t e c t a g a i n s t r is k w h e r e e x te r n a l f a c t o r s s u c h a s a m a r k e t d i p

Page 39 of 143

05 JUNE 2019 – DAY 106
w o u ld r e q u ir e p r o t e c ti o n .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

W hat do you say there on page

27?
D R J O N AT H A N Z O R A H B L O O M : C h a i r i t ’s v e r y s i m i l a r t o t h e p r e v io u s
s li d e , i n o t h e r w o r d s t h e f e e t h a t R e g i m e n t s c h a r g e d f o r t h e c r o s s currency swap.

T h i s is r e la t e d to th e c o n ti n g e n t c r e d i t d e f a u l t s w a p

a n d t h e p r i n c i p l e s t h a t a p p l y th e r e a ls o a p p ly h e r e . T h e o n l y d i ff e r e n c e
is th e 5 .7 m i ll io n f e e t h a t R e g i m e n t c l a i m e d w a s a ls o p a id b y Tr a n s n e t
10

a s p a r t o f t h e 1 6 6 m il li o n th a t w e ’r e r e f e r r in g t o p r e v i o u s l y s o t h a t is
h o w th e 1 6 6 m il li o n w a s c o m p r is e d o f t h e 1 5 2 m i lli o n r e l a t e d t o th e d e b t
o r i g in a ti o n a n d l e a d a r r a n g in g f e e s , t h e fe e p a y a b le f o r t h e c r o s s c u r r e n c y s w a p a n d t h e f e e p a y a b le f o r t h e c o n t in g e n t c r e d i t d e fa u l t
s w a p , t h a t w o u l d m a k e u p th e 1 6 6 m il li o n . S o t h e 5 . 7 m il li o n in t e r m s o f
s tr u c t u r in g th e C C D S’ is e v e n m o r e i n tr i g u i n g i f I c a n u s e th a t w o r d ,
m e r e ly b e c a u s e – t h i s i s a v e r y, v e r y c o m p le x t r a n s a c t io n a s y o u m a y
a p p r e c ia t e a n d th e – J P M o r g a n h a d c e r t a i n i n te ll e c t u a l p r o p e r ty t h a t
t h e y a p p l i e d i n t h e e x e c u t i o n o f t h i s tr a n s a c t io n w h i c h a c tu a l ly w a s a
b e n e fi t to Tr a n s n e t . S o – a n d th e I P r e la t e d t h e r e t o , i n o t h e r w o r d s i n

20

– t o e x e c u t e th is tr a n s a c t io n w a s t h a t o f J P M o r g a n ’s a n d n o t o f
R e g i m e n t s . S o th is is w h a t is a l s o q u i t e s tr a n g e i n t e r m s o f , i f I c a n u s e
t h e w o r d , i n t e r m s o f t h is p a r ti c u l a r tr a n s a c ti o n b e c a u s e t h is i s – t h is
w o u ld h a v e b e e n a – t h i s is a h i g h ly c o m p l e x th i n g a n d t h e I P, a s I s a i d
w a s J P M o r g a n ’s .
A D V PA U L J O S E P H P R E TO R I U S S C :

Page 40 of 143

S o a g a i n , J P M o r g a n is

05 JUNE 2019 – DAY 106
a p p o i n t e d t o d o a p a r tic u la r h e d g in g s w a p .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

I t w o u l d h a v e u s e d i ts o w n

in t e l le c t u a l p r o p e r t y t o e x e c u t e th is c o m p l e x fi n a n c i a l in s t r u m e n t .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : N o t w i t h s ta n d i n g th a t R e g i m e n t s
w a s p a i d s e p a r a t e ly, a n a m o u n t o f 5 . 7 m il li o n r a n d f o r a p p a r e n t ly d o i n g
t h e w o r k th a t J P M o r g a n w a s f o r m e r ly a p p o i n te d to d o .
D R J O N AT H A N Z O R A H B L O O M :
10

T h a t ’s c o r r e c t C h a ir, f o r s t r u c t u r in g

a n d a r r a n g in g .
A D V PA U L J O S E P H P R E TO R I U S S C :

S i m il a r ly a r e y o u a w a r e o f a n y

o th e r a r r a n g e m e n t d ir e c t ly b e t w e e n Tr a n s n e t a n d R e g i m e n ts t o p a y i t
t h a t s e p a r a t e a m o u n t o f 5 . 7 m i ll io n r a n d ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

On the face of it, had such

e x i s te d w o u l d h a v e b e e n p r o p e r ?
D R J O N AT H A N Z O R A H B L O O M : It w o u ld h a v e b e e n s tr a n g e b e c a u s e
t h e r e w a s a lr e a d y a n a g r e e m e n t b e t w e e n J P M o r g a n a n d Tr a n s n e t f o r
t h e e x e c u ti o n o f t h e s e p a r t ic u l a r ty p e s o f tr a n s a c ti o n s , s o h o w
20

R e g i m e n t s f i tt e d i n a n d h o w t h e y w o u l d a li g n w it h Tr a n s n e t i n
p e r f o r m i n g t h e s e f u n c ti o n s i s w h e r e t h e l in k is m is s i n g .
A D V PA U L J O S E P H P R E TO R I U S S C :

A l r ig h t , w e ’r e g o i n g to g o b a c k

now to the interest rate swaps and perhaps we should use the few
m i n u t e s b e f o r e t h e s h o r t a d j o u r n m e n t b e c a u s e C h a ir, t h e w i t n e s s d o e s
r e a l ly n e e d t o f i n is h to d a y a n d s o w e w il l m a k e o u r b e s t a t t e m p t t o d o

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05 JUNE 2019 – DAY 106
so.
C H A I R P E R S O N : Ye s , n o w e ’ ll – i f n e e d b e w o r k t il l fiv e .
A D V PA U L J O S E P H P R E TO R I U S S C :

I hope that won’t be necessary

C h a ir.
C H A I R P E R S O N : J a , j u s t in d ic a t i n g t h a t f r o m m y s i d e I w il l b e a v a i la b le
t o d o t h a t i f w e n e e d t o , y e s o k a y.
A D V PA U L J O S E P H P R E TO R I U S S C : T h a n k y o u C h a ir b u t l e t’s d e a l a s
f a r a s w e c a n w i t h th e r e t u r n to i n te r e s t r a te s w a p s .

Yo u s a y, i n t h e

fir s t b u ll e t – a n d I th in k y o u ’ v e a lr e a d y t o l d t h e C h a ir t h a t i n t e r e s t r a t e
10

s w a p s w e r e o n ly a p p l ic a b l e t o th e d o m e s ti c s y n d ic a t e d l o a n o f 1 2 b il li o n
r a n d c a ll e d t h e C lu b L o a n .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

Right and you say the swaps

w e r e e x e c u te d i n t w o tr a n c h e s , w h a t d o e s t h a t m e a n ?
D R J O N AT H A N Z O R A H B L O O M :

In o t h e r w o r d s t h e r e w a s 1 2 b il li o n

r a n d a p p lic a b l e a n d th e fir s t tr a n c h e o r i n o t h e r w o r d s t h e f ir s t a m o u n t
o f th a t 1 2 b il li o n r a n d w a s 4 . 5 b il li o n r a n d t h a t w a s e x e c u t e d o r th e
tr a n s a c ti o n o c c u r r e d o n t h e 4 t h o f D e c e m b e r a n d th e n o n th e 7 t h o f
M a r c h – a g 2 0 1 5 a n d o n t h e 7 t h o f M a r c h 2 0 1 6 a f u r th e r 7 . 5 b il li o n r a n d
20

o f t h e 1 2 b i lli o n r a n d w a s s w a p p e d – w a s e x e c u t e d .
A D V PA U L J O S E P H P R E T O R I U S S C :

S o a r e y o u s a y in g th a t th e

fi n a n c i a l a r r a n g e m e n t , t h e h e d g in g o r i n t e r e s t r a t e s w a p w a s p u t i n to
e ffe c t i n r e s p e c t o f 4 . 5 b i ll io n r a n d i n D e c e m b e r 2 0 1 5 a n d t h e r e m a in i n g
7 .5 b i ll i o n r a n d in M a r c h 2 0 1 6 ?
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d th e t h i r d b u ll e t y o u ’v e

a lr e a d y e x p l a in e d t o t h e C h a i r b u t b e c a u s e i t ’s q u i t e a n e a t s u m m a r y
w o u ld y o u j u s t p l a c e t h a t t h ir d b u l le t o n r e c o r d .
D R J O N AT H A N Z O R A H B L O O M : I c a n , s o C h a i r w h a t i s s w a p p e d a r e
t h e c a s h f lo w s a s s o c i a te d w i t h t h e t w o i n t e r e s t r a t e s , t h e f lo a t in g a n d
t h e fi x e d . Th e o n e is fl o a t i n g t h a t m o v e s w i t h t h e m a r k e t a n d th e o t h e r
is f ix e d f o r a c e r t a i n d u r a ti o n .

T h e o n e p a r ty r e c e iv e d t h e a m o u n t

a tt a c h e d t o th e fl o a t in g r a te a n d t h e o t h e r p a r ty p a y s a n a m o u n t
a tt a c h e d t o t h e f ix e d i n te r e s t r a t e .
10

O n ly t h e d i ffe r e n c e , a s w e ’ v e

d is c u s s e d , a m o u n t , b a s e d o n t h e f ix e d a n d f lo a ti n g r a t e s a r e p a id t o
e i t h e r o f th e p a r t ie s , t h a t’s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

A lr ig h t , a n d y o u th e n w i ll

p r o c e e d , h o p e f u l ly a f t e r th e s h o r t a d j o u r n m e n t w i th y o u r o b s e r v a t io n s
on page 29.

W e ’l l d e a l w i t h t h e b y w a y o f s u m m a r y b e c a u s e y o u ’v e

a l lu d e d t o th e m p r e v io u s ly, w o u l d th is b e a c o n v e n ie n t ti m e C h a ir.
CHAIRPERSON:

Ye s i t w o u l d b e b u t b e f o r e t h a t , t h a t b u ll e t p o i n t a t

p a g e 2 8 , is i t a n a n s w e r t o w h a t M r P r e t o r i u s s a i d o n t h e f ir s t d a y o f
y o u r e v i d e n c e , I d o n ’ t k n o w if t h a t w a s Fr i d a y, w h e n h e w a s s a y i n g th a t
y o u p e o p l e t a l k a b o u t – i n t h is s e c t o r t a lk a b o u t a s w a p b u t t h e r e ’s
20

n o t h i n g s w a p p e d , o r w a s t h a t a d i ff e r e n t c o n t e x t ?
D R J O N AT H A N Z O R A H B L O O M :

N o C h a ir t h i s is – y o u ’r e a b s o l u t e ly

r ig h t , i t ’s th e s a m e c o n t e x t in o th e r w o r d s … ( i n te r v e n t io n ) .
C H A I R P E R S O N : B e c a u s e I c a n s e e w h a t i s s w a p p e d h e r e , I h o p e I’ m
r ig h t .
D R J O N AT H A N Z O R A H B L O O M :

N o C h a ir, y o u ’r e a b s o l u te ly r i g h t , i n

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05 JUNE 2019 – DAY 106
o th e r w o r d s , i t ’s a c t u a ll y o n ly th e d i ffe r e n c e b e t w e e n t h e t w o r a t e s
t h a t ’s p a id t o e i th e r o f t h e p a r ti e s .

S o it ’s n o t – a s y o u a ll u d e d t o

p r e v i o u s ly C h a ir, t h e o n e p a r ty d o e s n ’ t w r it e o u t a c h e q u e t o t h e o t h e r
o n e a n d t h e o th e r p a r t y d o e s n ’ t w r i t e o u t a c h e q u e v is a v e r s a a n d t h e n
t h e y - a n d t h e n it ’s – a n d t h e n t h e o n e r e c e iv e d m o r e a n d t h e o t h e r o n e
r e c e i v e d l e s s , i t’s l it e r a l ly t h e d i ff e r e n c e b e tw e e n t h e t w o .
CHAIRPERSON:

B u t g o i n g b a c k t o th e m e a n i n g o f s w a p p i n g t h a t M r

P r e t o r i u s w a s t a l k i n g a b o u t , c a n o n e s a y w h e n p a r ti e s s u c h a s Tr a n s n e t
a n d N e d b a n k i n th e tr a n s a c ti o n th a t w e d e a l t w i t h , e n t e r i n t o t h a t s w a p
10

a r r a n g e m e n t, in e ff e c t w h a t t h e y a r e s w a p p i n g a r e th e r is k s .
DR

J O N ATH A N

ZORAH

BLOOM:

Th a t ’s

correct

C h a ir

because…(intervention).
C H A I R P E R S O N : S o Tr a n s n e t h a s e n t e r e d i n t o a n a r r a n g e m e n t w i th th e
c o n s o r ti u m i n t e r m s o f w h ic h i t is r u n n i n g a r is k a s s o c i a t e d w i th a
fl o a ti n g in t e r e s t r a te .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
CHAIRPERSON:

B u t it ’s n o t h a p p y w i t h t h a t , i t g o e s to N e d b a n k a n d

s a y, a s s u m e o r t a k e th is r is k b e c a u s e I ’d r a t h e r h a v e a f ix e d i n te r e s t
r a te r is k a n d N e d b a n k s a y s , w e ll I c a n g iv e y o u a f ix e d in t e r e s t r a t e
20

r is k , I’ m h a p p y t o ta k e t h e f lo a ti n g r a t e i n t e r e s t r i s k .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
C H A I R P E R S O N : S o is i t m o r e o r l e s s c o r r e c t , y o u a r e s w a p p i n g r is k s ?
D R J O N AT H A N Z O R A H B L O O M : Ye s , in o th e r w o r d s , fr o m a Tr a n s n e t
p e r s p e c t iv e th e y w o u l d b e t h e o n e s t h a t s a y, I w a n t t o d e - r is k o r t a k e
o u t t h e r is k o f fu t u r e i n t e r e s t r a t e i n c r e a s e s a n d I’ m p r e p a r e d t o p a y f o r

Page 44 of 143

05 JUNE 2019 – DAY 106
that.
CHAIRPERSON:

Ye s o k a y a l r i g h t o n e is tr y in g s o i t m a y b e t h a t M r

P r e t o r i u s , m y e x a m p le o f s w a p p in g a r i s k is n o t a h u n d r e d p e r c e n t
a c c u r a te , i t ’s m y w a y o f tr y i n g t o u n d e r s ta n d t h e s e t h i n g s , a s y o u k n o w,
a s l a w y e r s w e a l w a y s w a n t t o m a k e s u r e t h a t t h e d e fi n i ti o n fi t s o r a
t e r m fi t s t h e d e fi n i t io n .
A D V PA U L J O S E P H P R E TO R I O U S S C : C h a ir h o w e v e r o n e lo o k s a t i t ,
in e s s e n c e o n e is s w a p p in g r is k s , o n e is s a y in g to t h e c o u n te r p a r ty
y o u t a k e m y r is k a n d I ’l l t a k e y o u r r is k a n d t h e n th e fi n a n c i a l r e s u l t s
10

w h ic h f o l l o w a r e j u s t a n e t ti n g o ff o f t h e fi n a n c i a l i m p l ic a t i o n s , th e
c a s h - f lo w r e s u l ti n g fr o m b o t h – b u t w h a t – t h e p o i n t t h a t w a s m a d e la s t
w e e k C h a ir w a s a d i ff e r e n t o n e s l ig h tl y a n d t h a t w a s t h a t t h e o r i g i n a l
agreement remains in-tact.
C H A I R P E R S O N : Ye s , y e s .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o t h e o r i g in a l C l u b L o a n

r e m a in s i n - t a c t a n d Tr a n s n e t m u s t a lw a y s p a y t h a t , n o t h in g is s w a p p e d
in o r o u t o f t h a t a r r a n g e m e n t .
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P R E T O R I U S S C : T h e s w a p ta k e s p la c e w i t h t h e
20

c o u n t e r p a r ty a n d it ’s a r is k s w a p s o t h a t w a s th e p o i n t t h a t w e w e r e
tr y i n g t o m a k e .
CHAIRPERSON:

S o a t a p r a c t ic a l l e v e l a s b e t w e e n Tr a n s n e t a n d t h e

c o n s o r ti u m , t h a t r is k r e m a in s .
A D V PA U L J O S E P H P R E TO R I U S : C o r r e c t , n o t h i n g is s w a p p e d .
CHAIRPERSON:

A ll

that

happens

is

Page 45 of 143

that

Tr a n s n e t

goes

and

05 JUNE 2019 – DAY 106
a p p r o a c h e s a p a r ty a n d s a y s c o v e r m e i n t e r m s o f t h i s r i s k b e c a u s e i t
s t il l s ta n d s .
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s .
C H A I R P E R S O N : B u t i n e ff e c t b y d o in g s o it t a k e s c a r e o f th e r is k .
A D V PA U L J O S E P H P R E TO R I U S S C : N o t i n th is c a s e b u t i t o u g h t t o
h a v e t a k e n o f th e r i s k .
C H A I R P E R S O N : W e l l t h e p u r p o s e is t o t a k e c a r e o f th e r is k ja .
A D V PA U L J O S E P H P R E TO R I U S S C : S o t h a t ’s c l e a r.
CHAIRPERSON: No thank you.
10

A D V PA U L J O S E P H P R E T O R I U S S C :

W e ’ ll t a k e th e t e a a d jo u r n m e n t

a n d r e s u m e a t t w e n ty - f iv e to t w e lv e . W e ’r e a d j o u r n e d .
INQUIRY ADJOURNED
INQUIRY RESUMES
C H A I R P E R S O N : Ye s w e m a y p r o c e e d .
A D V PA U L J O S E P H P R E T O R I U S S C : T h a n k y o u C h a ir. D o c t o r B l o o m
p a g e 2 9 o f y o u r p r e s e n t a ti o n m a k e s f u r t h e r c o m m e n ts i n r e l a ti o n t o t h e
in t e r e s t s w o p s . W o u l d y o u g o t h r o u g h th a t p a g e p le a s e ?
D R J O N AT H A N Z O R A H B L O O M :

C e r ta i n ly C h a ir.

As we know there

w e r e tw o p a r ti e s to th e s e t r a n s a c t io n s r e l a te d t o t h e 1 2 b i ll io n c l u b
20

lo a n Tr a n s n e t a n d N e d b a n k a n d e a c h o n e o f th e m a s s u m e s a c e r t a i n
r is k .

T h e – a s in d ic a te d t h e r e is a – th e r e is n o r m a l ly a m a r k e t

e x e c u ti n g a g e n t o r a m a r k e t a g e n t th a t d o e s t h e tr a d e s a n d a s
in d i c a t e d p r e v i o u s l y th is c o u l d a ls o b e t h e e i t h e r o f t h e c o u n t e r p a r ti e s
b u t i n t h is p a r t ic u l a r c a s e th e r e w a s e x t e r n a l – a n e x t e r n a l p a r t y
R e g i m e n t s w a s u s e d a s t h e e x e c u ti n g a g e n t o f th e e x e c u ti o n a g e n t f o r

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05 JUNE 2019 – DAY 106
a l l t h e tr a d e s r e l a t e d t o th e c lu b lo a n . A n d t h e n N e d b a n k a s i n d i c a t e d
w a s t h e c o u n t e r p a r ty f o r a ll th e s w o p tr a n s a c ti o n s r e l a t e d t o t h e c lu b
lo a n . T h e n i n t h e la s t b u l l e t C h a ir t h e Tr a n s n e t d e a li n g r o o m w a s m o r e
t h a n c a p a b l e a n d h a d t h e r e q u is i t e c a p a c i ty t o e x e c u t e t h e tr a d e s . As
in d i c a t e d p r e v i o u s ly t h e s e a r e – t h e s e t y p e s o f s w o p s t h a t w e r e
p e r f o r m e d w e r e – a s – I u s e t h e w o r d Va n i ll a . T h e y a r e s t o c k s t a n d a r d
s w o p s . Th e r e w a s n o t h i n g u n to w a r d , n o th i n g s t r a n g e o r a n y th i n g a b o u t
t h e m i n t e r m s o f t h e ir e x e c u t i o n . I t c o u l d b e d o n e b y a n y b o d y t h a t is
a…
10

C H A I R P E R S O N : N o th in g c o m p le x ?
D R J O N AT H A N Z O R A H B L O O M : N o t h i n g c o m p le x C h a ir.
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

That could be done by any person

t h a t h a s b e e n o n a – o n a tr a d i n g f lo o r.
C H A I R P E R S O N : Ye x .
D R J O N AT H A N Z O R A H B L O O M : A s s u c h . S o …
CHAIRPERSON:

S o t h e r e c a n n o t b e a ju s ti fi c a t io n t h a t th e r e w a s

s o m e t h i n g p a r ti c u l a r ly c o m p l e x a b o u t t h e m ?
D R J O N AT H A N Z O R A H B L O O M : N o t …
20

C H A I R P E R S O N : A n d th a t i s w h y s o m e b o d y fr o m o u t s i d e w a s r e q u ir e d
w h o m a y h a v e h a d b e t te r e x p e r ti s e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir. S o I h a v e a l s o
in d i c a t e d t h a t th is – th is w i ll b e a p o i n t o f c o n te n ti o n b y Mr R a m o s e b u d i
a n d b e c a u s e t h e r e is a b e l ie f th a t t h e r e w a s n o t s u ffic i e n t c a p a c i ty a n d
s k i ll w i t h i n Tr a n s n e t t o p e r f o r m t h e s e tr a n s a c ti o n s . W h ic h i s a c t u a lly t o

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05 JUNE 2019 – DAY 106
t h e c o n tr a r y a n d t h e r e f o r e f e e s p a i d t o R e g i m e n ts w o u l d th e r e f o r e b e
u n j u s ti fi e d a s t h e – a s th e c a p a c i t y a n d th e s k il l e x is te d w it h in Tr a n s n e t
t o p e r f o r m t h e s e tr a n s a c ti o n s .
CHAIRPERSON:

Ta lk i n g a b o u t t h a t p o te n ti a l p o i n t o f c o n t e n t io n y o u

h a v e m a d e th e p o in t t h a t th is s w o p tr a n s a c ti o n w a s o r d i n a r y ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
CHAIRPERSON:
e x p e r t is e .

T h e r e w a s r e a lly n o th i n g r e q u ir in g a n y e x c e p t io n a l

B u t h a v e y o u b e e n a b l e to lo o k a t t h e q u a li f ic a t i o n s ,

e x p e r t is e a n d e x p e r i e n c e o f th e p e o p le t h a t R e g i m e n ts u s e d f o r th is
10

s w o p tr a n s a c ti o n a n d c o m p a r e d t h e m w i t h t h e p e o p l e t h a t Tr a n s n e t
w o u ld h a v e u s e d i f i t h a d u s e d i ts d e a li n g r o o m to d e a l w i th t h is a n d b e
a b l e t o s a y I h a v e l o o k e d a t t h e ir q u a li f ic a ti o n s , I h a v e lo o k e d a t t h e ir
e x p e r t is e , I h a v e l o o k e d a t t h e ir e x p e r i e n c e r e a ll y t h e r e is – t h e r e w a s
n o t h i n g t h a t t h e d e a l in g r o o m p e o p l e a t Tr a n s n e t d i d n o t h a v e ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir I d i d n o t lo o k a t R e g i m e n ts

s p e c i f ic a l ly.
C H A I R P E R S O N : Ye s .
D R J O N ATH A N Z O R A H B L O O M :

But I looked at – I looked at

Tr a n s n e t .
20

C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : A n d I d o h a v e – I w o u l d j u s t n e e d to
go there.
A D V PA U L J O S E P H P R E TO R I U S S C :

Yo u d e a l w i t h i t a t p a g e 4 0 f o r

example?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir. T h a t i s w h e r e I

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was going. Page 40.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d 4 1 .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s r i g h t . C h a i r …
CHAIRPERSON: Please talk to it because I have not read it.
D R J O N AT H A N Z O R A H B L O O M : O k a y t h e – I w i ll ju s t r e a d i t.
“ T h e Tr a n s n e t tr e a s u r y t e a m h a d a n d s t ill h a s th e
e x p e r t is e to h a n d l e t h e s e tr a n s a c ti o n s w i t h o u t th e
s u p p o r t o f e x t e r n a l tr a n s a c ti o n a d v is o r s o r e x e c u t io n
a g e n ts . ”
10

T h e r e l e v a n t tr a n s a c ti o n s a s in d ic a t e d C h a ir a r e ty p ic a lly t e r m e d
Va n i ll a , t h e y a r e s t o c k s t a n d a r d s w o p s a n d th e tr e a s u r y d e a l i n g r o o m
has

done

th e s e

and

does

these

p e r i o d i c a lly

w i th o u t

e x te r n a l

a s s is t a n c e .
“ T h e n o r m a l p r o c e s s i n t e r ms o f d o in g t h e s e ty p e o f
s w o p s w o u l d b e f o r Tr a n s n e t tr e a s u r y d e a l in g t e a m
t o o b t a i n in d i c a t iv e p r i c i n g o f t h e p r o p o s e d s tr u c t u r e
fr o m th e Tr a n s n e t a p p r o v e d c o u n t e r p a r ti e s a n d th e n
d e p e n d in g o n th e s iz e o f t h e p r o p o s e d t r a n s a c ti o n
t h e n u m b e r o f p a r t ic i p a ti n g c o u n t e r p a r t i e s w i ll b e
20

r e d u c e d to t h r e e b a s e d o n a c h ie v a b l e p r i c e s . ”
I n o t h e r w o r d s t h e y w i ll g o i n t o th e m a r k e t , th e y l o o k a t w h o i s g o i n g t o
g iv e u s th e b e s t p r i c e f o r w h a t w e a r e tr y in g t o a c h i e v e o r in r e a l is i n g
o u r o b j e c t iv e a n d t h e y w o u l d d o i t o n t h a t b a s is .
A D V PA U L J O S E P H P R E TO R I U S S C : B e f o r e y o u g o w o u l d s u c h s w o p
b e a n y th i n g n e w t o t h e Tr a n s n e t d e a li n g r o o m ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M :

N o t in – n o t t h e s w o p s t h a t w e a r e

r e fe r r i n g t o h e r e C h a ir.
C H A I R P E R S O N : I – I g u e s s w h a t I a m l o o k i n g a t s e e in g th a t y o u w e r e
– y o u m a d e th e p o i n t t h a t t h e r e c o u l d b e a p o i n t o f c o n t e n t i o n w i t h
r e g a r d t o w h e th e r o r n o t t h e – Tr a n s n e t h a d t h e r e q u is i te c a p a c i t y.

I

g u e s s w h a t I a m l o o k i n g a t i s a s i tu a ti o n w h e r e i f s o m e b o d y h a s a
c o n tr a r y v ie w t o y o u r s a n d s a y s a s y o u s a y M r R a m o s e b u d i is lik e l y to
s a y – s a y s n o b u t w e d i d n o t h a v e t h e c a p a c it y.

Q u it e a p a r t fr o m

d e b a ti n g w h a t t h e a c t u a l e x p e r tis e y o u c a n a c t u a ll y s a y b u t l o o k a t t h e
10

p e o p l e y o u u s e d o r R e g i m e n ts u s e d . L o o k a t w h a t th e y h a v e i n te r m s
o f q u a l if ic a ti o n , e x p e r ie n c e a n d e x p e r tis e . M a y b e y o u a r e a b l e to – y o u
w o u ld b e a b l e to s a y, w h e n y o u c o m p a r e it w i t h th o s e – w it h t h e e x –
q u a li fi c a t io n s , e x p e r i e n c e a n d e x p e r tis e o f t h o s e t h a t Tr a n s n e t h a d
t h e r e is n o t h i n g r e a l ly s p e c ia l . S o I a m lo o k i n g a t d o i n g a n e v e n i f k i n d
o f a r g u m e n t . Yo u u n d e r s t a n d w h a t I m e a n ?
D R J O N AT H A N Z O R A H B L O O M : I d o . I d o C h a ir.
C H A I R P E R S O N : S o – b u t i f – i f y o u r s t a r t i n g p o i n t is t h is – t h i s w a s a n
o r d i n a r y s w o p tr a n s a c ti o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.

20

CHAIRPERSON:

I t d i d n o t n e e d s p e c i a l e x p e r ti s e I k n o w – w h a t

e x p e r i e n c e . I t w a s ju s t a n o r m a l s w o p tr a n s a c t io n .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
CHAIRPERSON:

T h e e x p e r ie n c e t h a t Tr a n s n e t h a d w a s e n o u g h b u t I

am saying I am going beyond that to say let us assume that there was
s o m e t h i n g e x c e p ti o n a l a b o u t i t y o u l o o k a t th e p e o p le t h a t R e g i m e n ts

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05 JUNE 2019 – DAY 106
t h a t u s e f o r i t a n d y o u c o m p a r e t h e m t o th e p e o p le t h a t Tr a n s n e t h a d in
it s d e a l i n g r o o m a n d y o u a r e a b l e t h e n t o s a y t h e r e i s n o ju s ti fi c a t io n
f o r n o t h a v i n g u s e d Tr a n s n e t ’s o w n c a p a c i t y.
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
CHAIRPERSON: Thank you.
A D V PA U L J O S E P H P R E TO R I U S S C : P e r h a p s y o u s h o u ld w h il e w e a r e
d e a li n g w i t h i t t h e n g o t o p a g e 4 1 a n d d e a l w i t h i t th e r e .

Of course

C h a ir t h e q u e s t io n a r is e s a s y o u h a v e s t a te d w h i c h w il l b e p u t b e f o r e
y o u i n d u e c o u r s e w i t h t h e a n s w e r h o p e f u l ly w il l b e p u t b e f o r e y o u i n
10

d u e is d id R e g i m e n ts h a v e a n y c a p a c it y a t a l l o r d id t h e y o u ts o u r c e b u t
w e w ill c o m e t o th a t .
C H A I R P E R S O N : Ye s . T h e y a r e n o t – t h a t b e c o m e s v e r y i m p o r t a n t j a .
Thank you.
D R J O N AT H A N Z O R A H B L O O M : C h a ir o n p a g e 4 1 u n ti l 3 0 A p r i l 2 0 1 7
t h is w a s n o w w e ll a f t e r t h e – t h is s w o p tr a n s a c ti o n s c o m m e n c e d t h e
Tr a n s n e t tr e a s u r y d e a li n g r o o m t e a m c o m p r is e d f o u r tr a d e r s a n d a
market analyst and the team members had a combined experience of
a l m o s t a h u n d r e d y e a r s i n th e lo c a l m o n e y c a p i t a l a n d f o r e x m a r k e t s .
S o a s w e – a s w e a l s o d i s c u s s e d p r e v i o u s l y C h a ir th e Tr a n s n e t tr e a s u r y

20

w a s a ls o r a t e d a s o n e o f t h e b e s t i n t h e w o r l d b y M c K in s e y i n t h e ir
s u r v e y i n 2 0 1 0 e x c u s e m e a n d t h e r e f o r e m y c o n c lu s i o n w a s l o o k i n g a t
t h e C V ’s o f t h e s e g e n t le m e n t h e y h a d th e a b il it y, t h e s k i ll s a n d
q u a li fi c a t io n s a s w e ll a s e x p e r i e n c e t o r a is e d e b t b u t a ls o to e x e c u t e
t h e fi n a n c i a l tr a n s a c ti o n s w e a r e t a lk i n g a b o u t .
CHAIRPERSON: Thank you.

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s . I f w e c a n g o b a c k t h e n to
p a g e 3 1 . T h e C h a ir h a s a lr e a d y r a is e d w it h y o u is s u e s r e la t e d t o th e
R 1 2 b i ll io n c lu b lo a n , t h e d o m e s t ic lo a n a n d h e h a s a s k e d y o u w h y i f
t h e a g r e e m e n t w a s e n t e r e d in t o o n t h e 2 3 N o v e m b e r 2 0 1 5 a t a fl o a ti n g
in t e r e s t r a te o n e c o u ld r e a s o n a b ly a n d e x p l ic a b ly s w o p a n d I u s e t h a t
t e r m a d v is e d ly t h e r is k w i t h a c o u n te r p a r ty t o p l a c e y o u r s e lf i n th e
p o s i ti o n t h a t y o u w o u l d h a v e b e e n h a d y o u e n t e r e d in t o a fix e d r a t e
lo a n . A n d t h e q u e s ti o n t h e n a r is e s t h i s s w o p t r a n s a c t io n w a s d o n e a
f e w d a y s l a t e r h o w d o e s o n e e x p la in t h a t a n d y o u d e a l w i th t h a t i n th e
10

n e x t s e c ti o n o f y o u r p r e s e n t a t io n .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t . S o l e t u s g o to p a g e 3 1
p l e a s e i f y o u w o u ld t a k e th e C h a i r t h r o u g h w h a t y o u s a y o n th a t p a g e ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir i n o r d e r to – fo r Tr a n s n e t t o

swop such large amounts of money remember we talking about the 12
b i ll io n c l u b l o a n , w e t a l k i n g a b o u t a fu r t h e r a m o u n t o f Tr a n s n e t d e b t o f
11 . 3 b il li o n w h ic h w e w i ll g e t t o .

I t w o u l d h a v e r e q u ir e d t h e m to fir s t

u n d e r s t a n d w h a t t h e i m p a c t o f t h a t i s o n t h e s tr u c t u r e o f th e ir d e b t
b o o k . I f I c a n p u t i t t h a t w a y. I n o t h e r w o r d s a l l t h e fl o a t in g – t h e d e b t
20

t h a t t h e y h a d o n t h e i r b o o k i n t e r m s o f fl o a ti n g r a te s a n d t h e d e b t t h e y
h a d o n t h e ir b o o k in t e r m s o f fi x e d r a t e s .
A D V PA U L J O S E P H P R E TO R I U S S C :

N o w t h e d e b t b o o k is a ll t h e

lo a n s a n d a ll t h e d e b t w h ic h Tr a n s n e t h a s a t a n y p a r ti c u l a r p o in t i n
ti m e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir th a t c o u l d b e i n

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05 JUNE 2019 – DAY 106
b o n d s i s s u e d b y Tr a n s n e t , i t c o u l d m e a n s tr a ig h t d e b t r a is e d b y
Tr a n s n e t e tc e t e r a , e tc e te r a .
A D V PA U L J O S E P H P R E TO R I U S S C : A l l l o a n s ?
D R J O N AT H A N Z O R A H B L O O M :

A l l l o a n s th a t is r ig h t .

So – so

e s s e n ti a l ly w h a t Tr a n s n e t h a d t o – w e ll w h a t h a d t o h a p p e n is t h e –
Tr a n s n e t h a v e a p o l ic y t h e r is k m a n a g e m e n t fr a m e w o r k w h ic h d e a ls
w i t h e x a c t ly t h a t p o i n t .

W h a t th e r a t i o s h o u ld b e b e t w e e n f ix e d r a t e d

d e b t a n d fl o a t i n g r a t e d e b t .

A n d in o r d e r f o r t h e m t o d o t h e s e

tr a n s a c ti o n s i n o th e r w o r d s t o c o n v e r t f r o m f l o a t in g t o fix e d th e y m i g h t
10

h a v e t o h a v e o r t h e y w o u ld h a v e n e e d e d t o p o te n ti a lly a n d w e c a n s e e
it d i d h a p p e n , p o t e n t ia ll y c h a n g e t h e r a t i o b e t w e e n fl o a t i n g a n d f ix e d .
I n o t h e r w o r d s b e c a u s e th e y w a n te d t o e x e c u t e i n te r e s t r a t e s w o p s a t
fi x e d r a te s th e y w o u l d h a v e h a d t o i n c r e a s e th e i r d e b t o r t h e d e b t r a t i o
fr o m r e d u c i n g fl o a t in g a n d i n c r e a s i n g fix e d to a a c c o m m o d a t e th a t . S o
t h e y w o u l d h a v e h a d t o c h e c k a r e t h e y s ti ll w i t h i n t h e b o u n d s o f t h e
p o li c y o r n o t? A n d if t h e y w e r e n o t w i th i n t h e b o u n d s o f t h e p o l ic y i n
t e r m s o f w h a t t h e y w e r e tr y in g t o d o t h e n t h e y w o u ld h a v e t o a m e n d t h e
p o li c y.

A n d t h a t i s w h a t is b e in g r e f e r r e d t o C h a ir a s t h e f ix e d r a t e

s tr a t e g y i n t h e s e c o n d b u ll e t. I n t h e t h ir d b u ll e t …
20

C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

In t h e t h ir d b u ll e t t h e r e o n e h a s a n

in d i c a t io n o f w h a t h a p p e n e d . I n 2 0 1 2 th e – a n d r e m e m b e r C h a i r th e –
w h a t w e a r e ta lk in g a b o u t h e r e i s th a t th e r e a r e r a n g e s f o r fl o a ti n g i n
o th e r

words

it i s

b e tw e e n

a

c e r ta in

p e r c e n ta g e

and

a

c e r ta in

p e r c e n t a g e a n d fi x e d w o u l d b e b e t w e e n a c e r ta in p e r c e n t a g e a n d a

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05 JUNE 2019 – DAY 106
certain percentage so there were ranges. So each one of those ranges
w o u ld h a v e to a d d u p t o 1 0 0 .

So if you have a look we can use an

example…
C H A I R P E R S O N : W e l l l e t m e a s k t h i s b e fo r e y o u p r o c e e d . I s t h e r a ti o n
t h a t y o u ta lk in g a b o u t i n r e l a ti o n t o a l l t h e d e b ts o f Tr a n s n e t? I n o t h e r
w o r d s if y o u l o o k a t a ll t h e d e b ts th e y h a v e a n d y o u l o o k a t t h e – a t
w h e r e t h e y h a v e u s e d a f lo a ti n g i n t e r e s t r a t e a n d w h e r e t h e y h a v e u s e d
fi x e d r a te t h a t is w h a t t h e y m u s t h a v e i n – th e y m u s t b e a r i n m i n d a n d
t h e p o l ic y i s th a t w h e n y o u h a v e r e g a r d t o a l l o f t h o s e t h i s i s t h e r a t io
10

t h a t s h o u l d b e o r is i t s o m e t h i n g e ls e t h a t y o u t a lk i n g a b o u t ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir th a t i s – th a t i s c o r r e c t .
CHAIRPERSON: Hm.
D R J O N ATH A N Z O R A H B L O O M : I n o t h e r w o r d s Tr a n s n e t m a k e a – a
d e t e r m i n e d j u d g m e n t o n h o w m u c h f lo a t in g d e b t t h e y w o u l d l ik e t o
have.
C H A I R P E R S O N : To h a v e j a .
D R J O N AT H A N Z O R A H B L O O M : A n d h o w m u c h fix e d d e b t .
C H A I R P E R S O N : Ye s , y e s .
D R J O N AT H A N Z O R A H B L O O M : B u t d o – a n d th a t is t h e b a s is .

20

C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : S o th a t c a n c h a n g e .
C H A I R P E R S O N : Ye s .
DR

J O N ATH A N

ZORAH

BLOOM:

P e r io d ic a l ly

c ir c u m s ta n c e s .
CHAIRPERSON: Hm

Page 54 of 143

depending

on

05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : B u t w e w ill …
C H A I R P E R S O N : B u t u n ti l i t is c h a n g e d t h a t is w h a t y o u m u s t b e w i t h i n
if y o u e n t e r i n to a n y tr a n s a c t i o n ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir i n th e te r ms o f th e r is k
management framework.
CHAIRPERSON:

I n t e r m s o f r i s k m a n a g e m e n t ja .

Okay thank you.

T h e id e a b e i n g t h a t Tr a n s n e t d o e s n o t w a n t t o b e b e y o n d c e r ta in
p a r a m e t e r s i n t e r m s o f e i t h e r f ix e d o r fl o a ti n g i n t e r e s t r a te a t a n y o n e
ti m e . D o e s n o t w a n t t o o u ts id e o f t h e p a r a m e t e r s it f ix e s fo r i ts e l f ?
10

D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir. S o if th e y w a n t
to take on new debt.
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : O r t h e y w a n t to s w o p .
C H A I R P E R S O N : Ye s .
D R J O N ATH A N Z O R A H B L O O M : Th e n t h e y w o u ld n e e d t o c o n s i d e r t h e
i m p a c t.
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : O f t h a t d e c i s i o n .
C H A I R P E R S O N : Ye s .

20

D R J O N AT H A N Z O R A H B L O O M : O n t h e e x is ti n g p o lic y.
C H A I R P E R S O N : Ye s . S o t h a t t h e ir a p p r o a c h s h o u l d p r i m a r i ly t o b e t o
f a ll w i th in t h e p o lic y a n d i f t h e c i r c u ms t a n c e s o f th a t tr a n s a c t i o n a r e
s u c h th a t th e y t h i n k t h a t t h e y s h o u ld g o a g a in s t w h a t is th e r e i n t h e
p o li c y th e n t h e p o lic y s h o u l d b e c h a n g e d f i r s t t o a c c o m m o d a t e t h a t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.

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05 JUNE 2019 – DAY 106
C H A I R P E R S O N : J a o k a y. T h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C :

I u n d e r s t a n d t h e e x e r c is e th a t

y o u h a v e n o t d o n e i s t o lo o k a t th e p o l ic y a s i t e x is t e d o n t h e 2 3
N o v e m b e r 2 0 1 5 , l o o k a t t h e d e b t b o o k a s a w h o le a n d t h e p r o p o r ti o n o f
fi x e d t o fl o a t i n g i n th e d e b t b o o k a n d c o n c l u d e d w h e th e r i t w a s
a p p r o p r i a t e t o e n t e r i n to a fl o a t i n g r a t e p o l ic y i n th e fi r s t p la c e .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : B u t y o u d o t a lk o f tr e n d s in t h e
f o u r t h b u ll e t .
10

D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

S o i t i s o n e t h in g to s a y l o o k

t h e r e m u s t b e a p o l ic y in p l a c e w h ic h w i ll a l lo w y o u to s w o p f r o m
fl o a ti n g t o f ix e d a s t h e y d i d in D e c e m b e r 2 0 1 5 b u t w h a t a b o u t t h e
o r i g in a l a g r e e m e n t ?

S h o u l d t h a t n o t a ls o a c c o r d w i t h th e p o li c y

b e c a u s e t h e o r ig i n a l a g r e e m e n t w a s t o e n te r i n t o a fl o a t i n g r a t e l o a n
a n d t h e n a f e w d a y s l a t e r th e y e n t e r i n t o a fi x e d r a t e a n d w e h a v e n o
in d i c a t io n th a t th e p o li c y w a s c h a n g e d i n t h e in t e r i m .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir b e c a u s e if y o u –
w h a t t h e y d id w a s t h e y – b e c a u s e th e y – t h e i n t e n t io n w a s to h a v e a l o t
20

m o r e fi x e d r a t e d e b t t h e y h a d t o c h a n g e th e p o li c y a n d t h a t p o li c y
c h a n g e d s i g n i f ic a n t ly to h a v in g a 9 0 % a t t h e u p p e r b o u n d , 9 0 % f i x e d
a n d 1 0 % f l o a ti n g . I f y o u l o o k a t t h e t h ir d b u ll e t th e l a s t s e n t e n c e t h o s e
a r e t h e r a n g e s b u t i f y o u l o o k a t t h e h i g h e s t o n f ix e d a n d t h e l o w e s t o n
fl o a ti n g i t w o u l d b e 9 0 / 1 0 . S o t h a t w a s t h e p o li c y t h a t w a s a d o p te d a n d
t h e y w o u l d h a v e n e e d e d t o d o s o m e th i n g l ik e t h a t a n d a s A d v o c a te

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05 JUNE 2019 – DAY 106
P r e t o r i u s q u i t e c o r r e c t ly s a y s f u r th e r w o r k i s r e q u ir e d a n d f u r th e r
in v e s t i g a t io n is n e e d e d i n th is – in t h i s c o n te x t m o r e s p e c i f ic a l ly t o th e
ti m i n g o f th e tr a n s a c t io n a t t h a t p o i n t – i n N o v e m b e r 2 0 1 5 .

B u t t h is

w a s a c l e a r in d i c a t io n o f w h a t th e i n t e n ti o n w a s a n d t h a t w a s t o
in c r e a s e t h e f ix e d r a t e c o m p o n e n t o f t h e d e b t b o o k t h r o u g h a p o l ic y
change.
A D V PA U L J O S E P H P R E TO R I U S S C :

B u t i f o n e ju s t g o e s o n t h e

in f o r m a ti o n t h a t y o u h a v e t o h a n d D o c t o r B l o o m if th e s w o p t o fi x e d i n
D e c e m b e r 2 0 1 5 w a s w i t h i n t h e b o u n d s o f p o li c y t h e n i t f o l l o w s t h a t i t
10

w o u ld a l s o h a v e b e e n i n a c c o r d a n c e w i t h p o lic y t o e n t e r i n t o a fi x e d
r a te lo a n a f e w d a y s e a r l ie r ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d s o w h a t is th e p o i n t y o u

m a k e in t h e f o u r t h b u ll e t ?
D R J O N AT H A N Z O R A H B L O O M :

T h e f o u r th b u ll e t.

I n o th e r w o r d s

b e c a u s e o f t h e c ir c u m s ta n c e s a n d t h e ti m i n g o f th e tr a n s a c ti o n t h a t t h e
c lu b lo a n o n t h e 2 3 N o v e m b e r s h o u ld h a v e b e e n e n t e r e d i n to a fi x e d
r a te lo a n i f t h a t w a s th e i n t e n t io n . I t w a s n o t n e c e s s a r y t o f ir s t e n t e r
in t o a f lo a ti n g r a te lo a n a n d t h e n i n t o a f i x e d r a t e lo a n l a te r. B e c a u s e
20

t h e – C h a ir t h e f in a n c i a l r is k m a n a g e m e n t p o l ic y a ls o c l e a r ly s a y s t h a t
y o u m u s t fi x t h e r a t e a t s o u r c e .

I n o th e r w o r d s o n c e – a t th e p o i n t

w h e r e y o u c o n c l u d e th e a g r e e m e n t – i n o t h e r w o r d s – t h e c l u b l o a n o n
t h e 2 3 N o v e m b e r it s h o u l d h a v e b e e n fi x e d a t t h a t p o i n t , th a t is t h e
s o u r c e a n d n o t a w e e k l a te r a s it w a s d o n e i n te r ms o f t h e s w o p s .
A D V PA U L J O S E P H P R E T O R I U S S C : A lr i g h t . Fo r t h e m o m e n t a l l y o u

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a r e s a y in g o n p a g e 3 1 a s I u n d e r s ta n d i t t h a t s u b je c t t o a m o r e d e ta il e d
a n a ly s is t h e tr e n d s a n d t h e p o l ic y w o u l d in d i c a t e t h a t th e l o a n s h o u ld
h a v e b e e n e n t e r e d in t o o n a f ix e d r a t e b a s i s in t h e f ir s t p l a c e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d w e h a v e a p p li e d a l it t le

lo g i c t o c o r r o b o r a t e t h a t , c o r r e c t?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : Yo u a r e g o i n g to g e t l a te r t o t h e
p o li c y b u t i n r e l a ti o n to a n o t h e r a s p e c t . In o t h e r w o r d s a s I u n d e r s t a n d
10

w h a t y o u a r e s a y i n g t h e p o lic y s a y s m a k e u p y o u r m i n d w h e n y o u e n t e r
in t o th e lo a n d o n o t c h a n g e y o u r m i n d a w e e k l a te r.

Is t h a t i n e ff e c t

w h a t th e p o li c y s a y s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t . L e t u s g e t t h e r e to p a g e
32 then. What do you say in page 32?
D R J O N AT H A N Z O R A H B L O O M : S o C h a i r t h i s u n p a c k s a li t t le f u r t h e r
t h e ti m i n g o f t h e s e tr a n s a c ti o n s .

As w e k n o w t h e c lu b l o a n w a s

c o n c l u d e d o n t h e 2 3 N o v e m b e r. O n t h e 1 N o v e m b e r t h e f ir s t p o r ti o n o f
t h e R 1 2 b i ll io n th e R 4 . 5 b il li o n w a s d r a w n d o w n a n d …
20

C H A I R P E R S O N : N o t h a t is 1 D e c e m b e r h e y ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : S o i t i s t h e – s o i n t e r m s o f t h e …
C H A I R P E R S O N : J a I th i n k y o u m a y h a v e s a i d N o v e m b e r.
D R J O N AT H A N Z O R A H B L O O M : S o r r y C h a ir.

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05 JUNE 2019 – DAY 106
C H A I R P E R S O N : Ye s 1 D e c e m b e r.
D R J O N ATH A N Z O R A H B L O O M :

S o it w a s t h e 2 3 N o v e m b e r i t w a s

concluded.
C H A I R P E R S O N : Ye s .
D R J O N ATH A N Z O R A H B L O O M : T h e 1 D e c e m b e r t h e f ir s t p o r t io n w a s
d r a w n d o w n t h e R 4 . 5 b il li o n .
C H A I R P E R S O N : Ye s .
D R J O N ATH A N Z O R A H B L O O M :

A n d t h r e e d a y s la t e r o n t h e 4

D e c e m b e r t h e i n t e r e s t r a te s w o p s fr o m f l o a ti n g t o f ix e d w a s c o n c l u d e d .
10

S o fr o m a t i m i n g p e r s p e c ti v e n o w in t e r m s o f t h e fo ll o w i n g tr a n s a c t i o n
t h e s e c o n d p o r ti o n o f t h e d r a w d o w n t h e o th e r R 7 . 5 m il li o n th a t w a s
a ls o – w a s d r a w n d o w n o n t h e R 1 2 b il li o n t h is o c c u r r e d o n th e 1 M a r c h
2 0 1 6 a n d a c o u p l e o f d a y s l a te r …
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t n o t t h r e e .
D R J O N AT H A N Z O R A H B L O O M : P a r d o n ?
A D V PA U L J O S E P H P R E TO R I U S S C : I t i s s ix d a y s l a te r.
D R J O N AT H A N Z O R A H B L O O M : S ix d a y s j a . S ix d a y s l a t e r o n t h e 7
March the…
C H A I R P E R S O N : O h s h o u l d – t h a t [i n d is t in c t ] s h o u ld b e 6 ?

20

D R J O N AT H A N Z O R A H B L O O M : It s h o u l d b e 7 .5 .
C H A I R P E R S O N : Is t h a t r i g h t ?
D R J O N AT H A N Z O R A H B L O O M : It s h o u l d b e s ix d a y s .
C H A I R P E R S O N : J a o k a y.
D R J O N AT H A N Z O R A H B L O O M :

And then the – and then the 4.5

s h o u l d b e 7 . 5 ju s t a s o n e c a r r i e s o n . O n t h e – t h e n o n t h e 7 M a r c h t h e

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R 7 . 5 b i ll io n t h a t w a s – w a s c o n c lu d e d a t f lo a ti n g w a s th e n fix e d – w a s
t h e n c h a n g e d o r c o n v e r t e d t o fi x e d . S o w h a t c o m e s o u t C h a ir fr o m t h is
a n a ly s is i s t h a t a c e r t a i n tr e n d th a t th e fir s t p o r t i o n w a s d o n e o n th e –
in D e c e m b e r t h e s e c o n d p o r ti o n w a s d o n e i n M a r c h a n d s o it is c l e a r
t h a t t h e r e w a s s o m e k i n d o f u n d e r s t a n d i n g o f h o w th is e x e c u t io n o f
t h e s e tr a n s a c ti o n s w o u l d ta k e p l a c e .
A D V PA U L J O S E P H P R E TO R I U S S C :

In short on the 23 November

2 0 2 5 y o u e n te r i n t o a fl o a ti n g r a te p o lic y i n e ffe c t a f e w d a y s la t e r y o u
c h a n g e i t to a fix e d r a t e p o lic e a t g r e a t c o s t t o Tr a n s n e t .
10

D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d g r e a t b e n e fi t to c o u n te r

p a r t i e s a n d e x e c u t io n a g e n ts ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C : N o w y o u g o in t o t h e i m p lic a ti o n s
o f t h o s e f a c t s n o w i n th e fo ll o w i n g p a g e s a n d y o u s a y – y o u a s k e d th e
q u e s t io n i n t h e s e c o n d b u l le t o n p a g e 3 2 w h y d i d t h is ta k e p l a c e ? W h a t
is t h e e x p l a n a ti o n f o r t h is ?
D R J O N AT H A N Z O R A H B L O O M :

Chair the – in the number of

m e m o r a n d a t h a t I – th a t I p e r u s e d t h e g r o u p tr e a s u r e r w a s a t p a i n s to
20

in d i c a t e

that

for

–

in t e r e s t

rates

were

expected

to

in c r e a s e

s u b s t a n t ia ll y. I t – s o a s p a r t o f t h e a n a ly s is I w e n t a n d l o o k e d e x a c tl y
w h a t h a p p e n e d . A n d t h e r e w a s – t h e y t o o k a t w o y e a r v i e w o f i n te r e s t
r a te s a n d r e m e m b e r t h e y e n te r e d i n t o t h e s w o p a g r e e m e n ts fo r fi f t e e n
years.

S o t h e p r o b le m t h a t e x is ts h e r e s o b a s e d o n t w o y e a r s o f

f o r e c a s ts w h ic h w e r e n o t – w h ic h d i d n o t i n d ic a te a n y t h i n g e x p o n e n ti a l

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05 JUNE 2019 – DAY 106
in t e r m s o f g r o w th o r in c r e a s e o f i n te r e s t r a t e s w a s u s e d a s t h e b a s is
t o j u s ti fy t h e f ix i n g o f th e r a te s .
C H A I R P E R S O N : O f th e in t e r e s t r a t e y e s . Ye s . B u t w h a t i s th e n o r m
o r w h a t is t h e l o g i c i f y o u d o a f o r e c a s t o f in t e r e s t r a t e s in r e s p e c t o f a
fi f t e e n y e a r tr a n s a c t i o n l o a n s h o u ld th e f o r e c a s t n o t c o v e r t h e w h o l e
p e r i o d o r i t i s f in e i f i t c o v e r s th e l e s s e r p e r i o d p r o v i d e d c e r ta i n t h i n g s
h a p p e n o r w h a t is – w h a t is n o r m a l ly e x p e c t e d p r o f e s s io n a l ly ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir y o u w il l – y o u w i ll r a r e ly fi n d

t h a t i n s ti t u ti o n s w i ll f o r e c a s t a f if t e e n y e a r i n t e r e s t r a te .
10

I t is j u s t

almost impossible.
CHAIRPERSON:

B e c a u s e th e r e a r e to o m a n y v a r i a b l e s o v e r t h e

period?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : S o w h a t i s th e n o r m ? W h a t d o – w h a t k i n d o f p e r io d
d o e s t h e f o r e c a s t n o r m a ll y c o v e r ?
D R J O N AT H A N Z O R A H B L O O M : C h a i r t h a t t o o k …
CHAIRPERSON:

O r 5 0 % o f t h e d u r a t io n o r a q u a r te r o r i t j u s t g o e s

m a y b e b y f iv e y e a r s , f iv e y e a r s o r t h r e e y e a r s , th r e e y e a r s ?
D R J O N AT H A N Z O R A H B L O O M : C h a i r t h e r e is n o n o r m p e r s e .
20

C H A I R P E R S O N : Ye s .
D R J O N ATH A N Z O R A H B L O O M : B u t i n Tr a n s n e t ’s c a s e t h e y s u b s c r ib e
t o t h e – t o f o r e c a s ts o f i n t e r e s t r a t e s p r o v i d e d b y t h e B u r e a u F o r
E c o n o m ic R e s e a r c h a t S t e ll e n b o s c h U n iv e r s i ty.

T h e y – a n d th e y u s e

t h a t a s th e j u s t i fic a ti o n . S o t h e y – t h e y u s e – t h e y d o n o t d o f o r e c a s ts
f o r l o n g e r th a n t w o y e a r s .

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05 JUNE 2019 – DAY 106
C H A I R P E R S O N : O k a y.
D R J O N AT H A N Z O R A H B L O O M :

F r o m a s e r v ic e p r o v i d e r t h a t is

a c t u a ll y p r o v id i n g in f o r m a t io n to t h e m a r k e t
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : O n t h is p a r t ic u l a r m a t t e r.
C H A I R P E R S O N : Ye s .
D R J O N ATH A N Z O R A H B L O O M : T h e y d o h a v e fi v e y e a r f o r e c a s t s b u t
it is n o t a – i t i s a m o r e a d e p o s i t r a t e b u t a s y o u c a n s e e C h a ir t h e
p r o b le m w i t h t h a t a n d a s y o u c o r r e c tl y s a i d i s – h a s g o t t o d o w it h t h e
10

f a c t t h a t it is v e r y – t h e r e a r e m a n y v a r i a b le s t h a t i m p a c t o n i t a n d a s a
c o n s e q u e n c e t h is w a s a j u s t i fic a ti o n b u t f o r a f i ft e e n y e a r p e r i o d w h ic h
t h e t w o c o m p o n e n ts o f t h is – o f w h a t w e ta lk i n g a b o u t d o n o t a l i g n .
C H A I R P E R S O N : B u t w h a t I w a s tr y in g t o e s t a b li s h is w h e t h e r t h e r e is
a n y th in g t o b e m a d e o f th e f a c t th a t t h e y b a s e th e ir f o r e c a s t o n t w o
years.

S o – b u t fr o m w h a t y o u a r e s a y i n g i t s e e m s th a t t h e f a c t t h a t

t h e y b a s e d t h e ir f o r e c a s t o n tw o y e a r s i s – h a s n o s i g n i f ic a n c e ?
D R J O N AT H A N Z O R A H B L O O M :

Ye s C h a ir i n o t h e r w o r d s t h e y u s e d

in f o r m a ti o n a t h a n d t h a t w a s a v a i la b le i n t h e m a r k e t th a t p e o p le c a n –
in s t i tu t io n s c a n a c c e s s .
20

S o y e s i t w a s – in o t h e r w o r d s t h e y b a s e d

t h e ir d e c is io n o n t w o y e a r s g iv e n a f i f te e n y e a r d u r a ti o n .
CHAIRPERSON:

B u t th a t is w h a t t h e y d i d i m m e d ia t e l y b e f o r e t h e y

w e n t f o r t h e fix e d i n te r e s t r a te s w o p , i s t h a t r i g h t?

N o t b e fo r e t h e y

e n t e r e d i n t o th e fl o a ti n g r a t e .
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s t h a t i s t h e p o i n t C h a ir.
D R J O N AT H A N Z O R A H B L O O M :

T h e y – C h a ir t h a t i s e x a c t ly t h e

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05 JUNE 2019 – DAY 106
q u e s t io n .
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : Th e – i n o t h e r w o r d s y o u w o u ld n o t –
y o u w o u ld – w i ll s ta r t d o in g t h i s ty p e o f a n a ly s i s n o t t o tr y a n d j u s ti f y a
swop.
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

Yo u w o u l d b e d o i n g th a t a n a l y s i s to

ju s t i fy s h o u l d I b e f ix in g a t s o u r c e o r s h o u ld I r a t h e r k e e p – l e t u s s t ic k
t o f lo a ti n g a n d I c a n a l w a y s fi x a p o r t io n o f i t l a t e r.
10

CHAIRPERSON:

And on what you had a look at in terms of

d o c u m e n t a ti o n a n d m e m o r a n d a a n d w h o e v e r y o u m a y h a v e s p o k e n t o i f
y o u s p o k e to a n y o f th e p e o p l e w h o w e r e i n v o lv e d d id y o u – a r e y o u
a b l e t o s a y w h e t h e r o r n o t t h a t t h e r e w a s a fo r e c a s t t h a t w a s d o n e
b e f o r e t h e fl o a ti n g i n t e r e s t r a te r e g i m e w a s d o n e o r y o u h a v e n o t b e e n
a b l e – y o u h a v e n o t c o m e a c r o s s a n y t h i n g t h a t s u g g e s ts t h a t i t w a s
done?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir th e o n ly – th e o n ly – a s y o u
s a y o n ly in t e r m s o f th e m e m o r a n d a t h a t I p e r u s e d a n d s o o n .
CHAIRPERSON: Hm.
20

D R J O N AT H A N Z O R A H B L O O M :

It – the argument was based – was

for the swop.
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

So it was – that became the modus

operandi in essence …
CHAIRPERSON: Hm.

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M :

A n d i n t e r m s o f a n a l y s is r e la t e d to

d e c i d i n g t o f ix o ff o r r e t a i n f lo a ti n g a t t h e s o u r c e . In o t h e r w o r d s w h e n
t h e lo a n w a s c o n c lu d e d – n o I d o n o t h a v e …
C H A I R P E R S O N : Yo u h a v e n o t f o u n d ?
D R J O N AT H A N Z O R A H B L O O M :

They

–

I

have

not

found

any

in f o r m a ti o n t h a t a c t u a l ly s p e a k s to t h a t p a r ti c u la r …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : A s p e c t b u t m o r e – o n l y – m o r e to t h e
swap.
10

C H A I R P E R S O N : To t h e s w a p , ja . O k a y, t h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C :

W e ll w h a t w e k n o w D r B l o o m i s

t h a t w i th i n a f e w d a y s Tr a n s n e t c h a n g e d i t s m i n d fr o m fl o a t in g to fi x e d .
I t j u s ti f ie d th e fix e d i n t e r e s t r a te s w a p o n t h e b a s i s o f l o n g t e r m s
f o r e c a s ts b y th e B u r e a u f o r E c o n o m ic R e s e a r c h . D o y o u k n o w w h e th e r
Tr a n s n e t s u b s c r i b e d t o th a t s e r v ic e ?
D R J O N AT H A N Z O R A H B L O O M : Ye s t h e y d o C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

S o l e a v e a s i d e t h e q u e s ti o n o f

fi x e d o r fl o a ti n g a s a b s o lu t e c o n c e p ts f o r t h e m o m e n t b u t c o n c e n tr a te
o n th e c h a n g e o f m in d w i th in a f e w d a y s . I s t h e r e a n y e x p l a n a ti o n f o r
20

that?

I n o t h e r w o r d s i s th e l o n g t e r m f o r e c a s t a v a li d e x p l a n a t i o n f o r

c h a n g in g o f a p p r o a c h b e t w e e n fl o a t in g to f ix e d w i t h i n a f e w d a y s ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir.
C H A I R P E R S O N : I d o n o t k n o w w h e t h e r t h is q u e s ti o n w i ll b e th e s a m e
a s t h e o n e t h a t Mr P r e t o r iu s h a s j u s t a s k e d b u t I w a n t e d t o a s k i t m u c h
e a r l ie r.

To d o a f o r e c a s t w i th r e g a r d t o i n t e r e s t r a te s y o u n e e d a

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05 JUNE 2019 – DAY 106
c e r t a i n s t a te o f a ffa ir s o r y o u n e e d to i n f o r m y o u r s e l f o f a c e r t a in s t a t e
o f a ff a ir s o r f a c t o r s t h a t i n fl u e n c e th e fl u c t u a t io n o f i n te r e s t I w o u l d
imagine.

N o w th a t m a t e r ia l h o w - h o w i s h e – i s i t f o r i t t o c h a n g e

within just a matter of a few days?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir i t – it is u n l ik e l y a n d a s y o u

r ig h tl y s a i d t h e s e – t h e s e f o r e c a s ts o f i n t e r e s t r a t e s a r e b a s e d o n – o n
v a r io u s m o d e ll i n g a p p r o a c h e s w h ic h t a k e i n to a c c o u n t v a r i o u s v a r i a b l e s
b u t in o r d e r t o t h a t fo r e c a s t - I a m g e t ti n g a li t tl e t e c h n ic a l – b u t i n
o r d e r t o d o t h a t f o r e c a s t y o u w o u ld h a v e t o – a ll t h e v a r ia b le s th a t y o u
10

c o n s i d e r t h a t w o u ld i m p a c t o n i n t e r e s t r a te s i n t h e f u tu r e y o u w o u l d
have to forecast.

S o y o u w o u ld h a v e t o fo r e c a s t t h o s e v a r i a b l e s i n

o r d e r t o fo r e c a s t t h e i n te r e s t r a t e w h i c h i n i ts e l f is a v e r y d i ff ic u l t ta s k
b u t – y e s , I m e a n th a t is t h e – th e p r e mi s e …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : W h ic h w a s u s e d .
C H A I R P E R S O N : Ye s , y e s o k a y.
A D V PA U L J O S E P H P R E TO R I U S S C : S o l e t u s j u s t p u t i t i n a d i ffe r e n t
w a y p e r h a p s to c o n c l u d e t h a t p a g e a t l e a s t a n d m o v e o n . I f Tr a n s n e t –
t h e Tr a n s n e t Tr e a s u r e r – s o u g h t t o j u s t if y t h e s w a p a t h u g e c o s ts to
20

Tr a n s n e t t o fi x e d o n 4 D e c e m b e r s o u g h t t o j u s ti fy i t b y r e f e r e n c e to
e c o n o m ic f o r e c a s ts . T h e q u e s t io n a r i s e s s u r e l y th a t i n fo r m a ti o n s h o u l d
h a v e i n f o r m e d t h e d e c is io n m a d e o n 2 3 A p r i l a n d a p p l y i n g t h o s e s a m e
f o r e c a s ts o n e s h o u l d h a v e e n t e r e d i n t o a fi x e d a g r e e m e n t o n t h e 2 3 r d .
I t w o u l d ta k e s o m e e x p l a n a t io n to e x p la in t h a t a n o m a ly.
D R J O N AT H A N Z O R A H B L O O M :

T h a t i s c o r r e c t C h a ir.

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I think in –

05 JUNE 2019 – DAY 106
w h a t is i m p o r t a n t – i m p o r ta n t t o u n d e r s t a n d is th a t t h e s e f o r e c a s ts
w o u ld h a v e b e e n a v a i la b le .

So they would have done – been done

p r e v i o u s ly a n d a s a c o n s e q u e n c e y o u w o u l d n o t – e v e n if y o u w a n te d t o
fi x r a t e s a t t h a t ti m e o n 2 3 N o v e m b e r y o u m i g h t n o t h a v e f ix e d t h e
e n t ir e p o r t io n o f th e lo a n . Yo u w o u l d h a v e s a id o k a y w e s e e t h e r e is a n
u p t ic k i n i n te r e s t r a t e s p o t e n ti a l ly h a p p e n in g a c c o r d i n g to t h e s e
f o r e c a s ts .

S o l e t u s – l e t u s fix a p o r t i o n a n d t h e n w e w il l – if – i f

in t e r e s t r a te s s t a r t t o i n c r e a s e s i g n i fi c a n t ly w h a t e v e r t h e c a s e m a y b e
t h e n w e c a n f ix m o r e a n d m o r e b u t t o – t o s a y I a m g o i n g t o fix t h e
10

e n t ir e a m o u n t i n o n e – i n o n e tr a n c h e i s v e r y u n u s u a l i n t h a t.
A D V PA U L J O S E P H P R E TO R I U S S C :

S o w h a t w o u l d r e q u ir e a n

e x p l a n a t io n fr o m t h e Tr e a s u r e r w o u l d b e t h e f o l l o w i n g :

he says I did

m y h o m e w o r k a n d t h e r e f o r e e n te r e d i n t o t h e s w a p o n 4 D e c e m b e r.
P r e s u m a b ly h e s h o u ld h a v e d o n e h is h o m e w o r k a s t h e C h a i r s a i d
b e f o r e e n t e r i n g i n to t h e lo a n i n t h e f ir s t p l a c e .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O n e d o e s n o t d o o n e s h o m e w o r k
a ft e r t h e e v e n t a f te r t h e e x a m i n a t i o n s u r e l y.
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
20

A D V PA U L J O S E P H P R E TO R I U S

SC:

And

there

may

be

some

e x p l a n a t io n b u t y o u c o u l d n o t fi n d a n y o n t h e r e c o r d a n d t h e i n d ic a ti o n s
a r e t h a t t h e r e is n o e x p l a n a t io n ?
D R J O N AT H A N Z O R A H B L O O M :

T h a t is c o r r e c t C h a ir.

E x c e p t th e -

t h e t w o y e a r fo r e c a s t.
A D V PA U L J O S E P H P R E TO R I U S S C : W e l l t h e o n ly e x p l a n a ti o n w i ll b e

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05 JUNE 2019 – DAY 106
t h e r e th a t s u d d e n ly t h e t w o y e a r f o r e c a s t l a n d e d o n th e Tr e a s u r e r ’s
desk after 23 November?
D R J O N AT H A N Z O R A H B L O O M :

Ye s i t w a s – it w a s f o r t h e p u r p o s e s

o f j u s ti fi c a t io n .
A D V PA U L J O S E P H P R E TO R I U S S C :

And – but you say that these

f o r e c a s ts a r e p r e p a r e d l o n g i n a d v a n c e .
D R J O N AT H A N Z O R A H B L O O M : T h a t is …
A D V PA U L J O S E P H P R E TO R I U S S C : D o y o u k n o w w h e n t h a t f o r e c a s t
came out?
10

D R J O N AT H A N Z O R A H B L O O M : N o C h a ir.
CHAIRPERSON:

Do you – do you get – did you get to know whether

t h e p e r s o n s in v o lv e d i n c h o o s i n g – i n g o i n g w i t h th e fl o a ti n g r a t e –
fl o a ti n g in t e r e s t r a t e r e g i m e i n r e g a r d to t h e l o a n w e r e t h e s a m e p e o p l e
w h o d e c i d e d o n th e fi x e d te r m r a te f o r t h e s w a p o r c o u l d i t h a v e b e e n
d i ff e r e n t p e o p l e o r is t h a t s o m e t h i n g y o u c o u l d n o t t e ll ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir t h a t – i f y o u l o o k a t t h e

d e p a r t m e n ts w i t h i n Tr a n s n e t o r th e d i v is io n s o n e w o u l d – i t w o u l d h a v e
b e e n t h e D e b t R a is i n g D e p a r t m e n t o r th e F u n d in g D e p a r t m e n t – a s th e y
a r e c a ll e d n o w – a n d th e n t h e Tr e a s u r y D e p a r t m e n t a n d w i t h i n Tr e a s u r y
20

t h e r e a r e v a r i o u s – th e r e a r e v a r i o u s s e c t io n s th a t d e a l w i th v a r io u s
a s p e c ts …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : O f Tr e a s u r y m a t t e r s .
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : S o c o l le c t iv e ly …

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05 JUNE 2019 – DAY 106
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

T h e y w o u l d h a v e – th e y w o u l d h a v e

to sit …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : A n d g e t a n u n d e r s t a n d i n g o f w h a t is
t h e b e s t s tr a t e g y …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

Within the Risk Management or the

Fi n a n c i a l R is k M a n a g e m e n t f r a m e w o r k .
10

C H A I R P E R S O N : H m . O k a y, t h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C :

A l r ig h t .

L e t u s a p p r o a c h th is

c o n u n d r u m fr o m a d i ff e r e n t a n g le a n d y o u d e a l w i th t h a t o n p a g e 3 3 ,
r ig h t . T h e r e m a y b e i n f o r m a ti o n p l a c e d b e fo r e t h e C h a ir i n d u e c o u r s e
t h a t th e p l a n n in g fo r t h e f ix e d in t e r e s t r a te s w a p t o o k p la c e b e f o r e
2 3 N o v e m b e r. I n o th e r w o r d s w h e n t h e f lo a ti n g r a t e i n t e r e s t a g r e e m e n t
w a s e n t e r e d i n t o t h e y a lr e a d y k n e w th a t th e y w e r e g o i n g t o s w a p .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S

SC:

So

that

s u b je c t

m a t te r

of

in v e s t i g a t io n a n d e v id e n c e w i ll b e p l a c e d b e f o r e y o u i n d u e c o u r s e b u t
20

a p p ly i n g y o u r k n o w l e d g e a n d e x p e r i e n c e i s t h e tr a n s a c ti o n – t h e s w a p
tr a n s a c ti o n c a p a b l e o f b e i n g c o n c l u d e d in a fe w d a y s a f te r a c h a n g e o f
mind?
D R J O N AT H A N Z O R A H B L O O M : C h a ir n o t if y o u – b e c a u s e i f w e c a n
ju s t s o r t o f u n p a c k i t a n d r a is e i t a n d n o t e a c o u p l e o f p o i n ts . Fir s t o f
a l l t h e y w o u l d h a v e t o g o to t h e m a r k e t a n d d o th e ir p r ic in g .

Page 68 of 143

They

05 JUNE 2019 – DAY 106
w o u ld h a v e h a d t o – t h e y w o u ld h a v e h a d t o c o n s i d e r w h o w a s – w h o
w o u ld h a v e b e e n g iv e n th e b e s t o p t io n s in t e r m s o f p r ic i n g . T h e y w o u ld
h a v e – t h e y w o u l d h a v e a ls o h a d t o g o t h r o u g h v a r i o u s p r o c e s s e s in
t e r m s o f a p p r o v a l a n d a u th o r is a ti o n .

S o it – th is d o e s n o t h a p p e n i n

t h r e e d a y s – i n f o u r d a y s . I t – i t – t h e r e i s a – th e r e is a p r o c e s s a n d –
a n d i t c o u l d h a v e t a k e n – i t c o u l d e a s il y t a k e a m o n t h o r it c o u ld t a k e
t h r e e w e e k s p o t e n t ia lly b u t y e s it is n o t a – it i s n o t s o m e t h in g t h a t
h a p p e n s v e r y s w i f tl y. Ye s i t c o u ld – i t c o u ld b e – i t c o u l d b e e x p e d i te d
if t h e r e is a c r i s is .
10

I n o t h e r w o r d s in t e r e s t r a t e s f o r s o m e o r o t h e r

reason suddenly shoot up for – for whatever – whatever reason. So –
b u t i n - i n t h e n o r m a l c o u r s e o f – o f e v e n ts i t w o u ld ta k e – i t w o u l d t a k e
a c o u p l e o f w e e k s to – in o r d e r to – t o d e c i d e – b e c a u s e t h e y w o u l d
a ls o C h a ir a s – a s i n d ic a te d p r e v i o u s l y w o u l d h a v e to u n d e r s t a n d w h a t
t h e i m p a c t i s o n t h e d e b t s tr u c tu r e . S o i t is n o t o n ly g o i n g o u t t o t h e
m a r k e t f o r p r ic in g .

T h e r e is a lo t o f c a l c u la t i o n s a n d a l o t o f

u n d e r s t a n d in g a n d a u t h o r i s a t io n s t h a t n e e d t o h a p p e n .

S o in m y

o p i n i o n i t c a n n o t t a k e – it c a n n o t h a p p e n i n t h r e e d a y s .
A D V PA U L J O S E P H P R E TO R I U S S C : R ig h t a n d s o w h a t is t h e o p i n i o n
t h a t y o u o ff e r a s a m a t t e r o f p r o b a b i li ty o n p a g e 3 3 – s e c o n d b u ll e t?
20

D R J O N AT H A N Z O R A H B L O O M : T h a t :
“ P r i o r to e n te r i n g in t o t h e c l u b l o a n o n a f l o a t in g
r a te b a s is Tr a n s n e t O ff ic i a ls w o u l d h a v e i n t e n d e d to
e ffe c t in t e r e s t r a t e s w a p s e ff e c t iv e ly c o n v e r ti n g t h e
lo a n i n t o a f ix e d i n t e r e s t r a te lo a n . ”
A D V PA U L J O S E P H P R E TO R I U S

SC:

Page 69 of 143

So

you

say

g iv e n

your

05 JUNE 2019 – DAY 106
k n o w l e d g e a n d e x p e r ie n c e o f t h e w a y t h e s e th i n g s h a p p e n t h e w a y
t h e s e f in a n c i a l t r a n s a c t io n s a r e n e g o ti a t e d a n d c o n s t r u c t e d a n d th e
ti m e t h a t i t t a k e s t o d o s o i n th e o r d i n a r y c o u r s e - w h e n t h e y e n t e r e d
in t o th e fl o a t i n g r a t e l o a n o n 2 3 N o v e m b e r - Tr a n s n e t O ff ic ia ls a lr e a d y
k n e w a s a m a tt e r o f p r o b a b il it y - l e a v e a s i d e o th e r e v id e n c e . T h a t t h e y
w e r e g o i n g t o s w a p t o f ix r a te a t a h i g h e r c o s t l a te r ?
D R J O N AT H A N Z O R A H B L O O M : Th a t is c o r r e c t C h a ir. J u s t g iv e n t h e
– t h e v e r y s h o r t t i m e fr a m e s a n d t h e d e c is io n s t a k e n in t h e c o n te x t
thereof.
10

A D V PA U L J O S E P H P R E TO R I U S S C : A n d th e n th a t th e r e fo r e b e g s t h e
q u e s t io n w h y e n t e r i n t o a f l o a t in g r a t e p o l ic y w h e n y o u k n o w y o u a r e
g o i n g t o c h a n g e t o a fix e d r a t e la t e r a n d w h y d o y o u n o t s i m p l y e n t e r
in t o a fi x e d r a te lo a n i n t h e fir s t p l a c e .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d w e d e a l w i th t h a t q u e s t io n

in t h e n e x t f e w p a g e s , o k a y. W h a t y o u s a y o n p a g e ( i n t e r v e n e s ) ?
C H A I R P E R S O N : I a m s o r r y. B e fo r e y o u g o t o th a t p a g e s o y o u – y o u
a r e q u i te p o s i tiv e t h a t i n y o u r p r o f e s s io n a l o p in i o n i t is h i g h l y u n li k e ly
t h a t w i t h i n – th a t th e y e n te r e d i n to a fi x e d in t e r e s t r a t e s w a p t h r e e d a y s
20

a ft e r t h e l o a n a g r e e m e n t i n v o l v i n g a fl o a ti n g i n t e r e s t r a te . I t i s h ig h ly
u n li k e ly t h a t th e y d id s o b e c a u s e o f a n y c h a n g e i n c i r c u ms t a n c e s th a t
o c c u r r e d w i th i n t h a t t w o / t h r e e d a y s . Is th a t c o r r e c t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
CHAIRPERSON:

Yo u s a y t h a t i s h ig h l y u n l ik e ly t h a t th a t is t h e c a s e .

They must have known before they concluded the loan agreement

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05 JUNE 2019 – DAY 106
in c l u d e th a t – i n c l u d e d t h e f lo a ti n g i n t e r e s t r a t e a r r a n g e m e n t .

They

m u s t h a v e k n o w n th a t t h e y w e r e p l a n n i n g t o d o a f ix e d r a te – in t e r e s t
r a te s w a p s o o n a f t e r w a r d s ?
D R J O N AT H A N Z O R A H B L O O M :

T h a t is c o r r e c t C h a ir.

There was

n o t h i n g i n th e m a r k e t a t t h a t p o i n t …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

T h a t a ll u d e d t o a – i n t h a t s p e c i fi c

p e r i o d o f ti m e …
C H A I R P E R S O N : Ye s .
10

D R J O N AT H A N Z O R A H B L O O M :

U p t o 4 D e c e m b e r – w e w i ll t a lk

a b o u t t h e l a te r p e r i o d s l a t e r …
CHAIRPERSON:

Well I was about to ask whether it was anywhere

around the 9th/10 December 2015.
D R J O N AT H A N Z O R A H B L O O M : W e a r e g o i n g t o g e t th a t C h a ir.
C H A I R P E R S O N : O k a y, b u t th is w a s b e f o r e ?
D R J O N AT H A N Z O R A H B L O O M :

T h i s w a s b e fo r e .

So there was

nothing …
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : Fr o m a m a r k e t p e r s p e c tiv e …
20

C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

Th a t

could

have

said

but

now

s o m e t h i n g is – is d r a s ti c a ll y g o i n g t o h a p p e n …
C H A I R P E R S O N : Ye s , y e s .
D R J O N AT H A N Z O R A H B L O O M : A n d w e h a v e t o – w e h a v e t o m a k e a
p r o b le m . W e h a v e …

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05 JUNE 2019 – DAY 106
C H A I R P E R S O N : ( In t e r v e n e s ) .
D R J O N AT H A N Z O R A H B L O O M :

Th e r e w a s – t h e r e w a s t a l k o f

d o w n g r a d e s a n d – a n d t h i n g s l ik e th a t …
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : B u t i t n e v e r – t h e r e w a s …
C H A I R P E R S O N : C o n c r e ti s e d i n t o a n y t h i n g ?
D R J O N AT H A N Z O R A H B L O O M : Ex a c t ly C h a ir.
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : A n d – a n d t h a t i s w h y i t – it w a s v e r y
10

odd …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : T h a t t h is h a p p e n e d .
CHAIRPERSON:

Ye s .

Yo u m e n ti o n e d e a r l i e r o n y o u m a d e t h e p o in t

e a r l ie r o n th a t i n r e la t io n t o t h e l o a n t h e y c o u l d h a v e l i m it e d t h e
fl o a ti n g in t e r e s t r a te a r r a n g e m e n t to a s h o r te r p e r io d th a n t h e fu ll
d u r a t io n o f t h e lo a n . D id I u n d e r s t a n d y o u c o r r e c t ly ?
D R J O N AT H A N Z O R A H B L O O M :

Ye s C h a ir.

What I – what I meant

w a s t h a t in s te a d o f f ix in g t h e e n ti r e a m o u n t o f 4 . 5 b i ll io n t h e y c o u l d –
t h e y c o u ld e n te r – t h e y c o u l d ta k e t h e l o a n o n – a t f l o a t in g . S a y u s in g
20

t h e 4 . 5 b il li o n a s a n e x a m p l e a n d t h e n i f th e n e e d a r o s e t h e y c o u l d
h a v e – th e y c o u l d fi x a p o r t io n o f i t .
C H A I R P E R S O N : O h a p o r ti o n o f t h e – o f t h e a m o u n t n o t o f t h e – o f t h e
d u r a t io n o f t h e … ?
D R J O N AT H A N Z O R A H B L O O M : T h a t – th a t is c o r r e c t C h a ir.
C H A I R P E R S O N : Ye s . T h e d u r a ti o n h a s t o r e m a i n 1 5 – 1 5 y e a r s ?

Page 72 of 143

05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : It is j u s t th e p o r t i o n o f t h e a m o u n t .
D R J O N AT H A N Z O R A H B L O O M : T h a t is r i g h t .
CHAIRPERSON:

B u t t o s o m e e x t e n t y o u m i g h t a c h i e v e th e s a m e

w h e t h e r y o u – y o u k n o w - e v e n i f y o u w e r e to h a v e b e e n g iv e n m a y b e
s e v e n a n d a h a lf y e a r s to u s e a p a r t ic u l a r r e g i m e a n d a n o t h e r s e v e n
a n d a h a l f y e a r s to u s e a n o th e r r e g i m e . If y o u h a l f th e a m o u n t a n d u s e
o n e a n d u s e a n o t h e r o n e f o r a y e a r y o u m ig h t e n d u p a c h ie v i n g t h e
same thing or not – not as simple as that?
10

D R J O N AT H A N Z O R A H B L O O M : It is n o t a s s i m p l e a s th a t C h a ir.
CHAIRPERSON:

I s u s p e c te d . O k a y, a l r i g h t t h a n k y o u . Yo u r p o i n t i s

t h e y c o u ld h a v e m a d e s u r e t h a t i t w a s n o t th e w h o le a m o u n t th a t w a s
p u t u n d e r a c e r t a in r e g i m e ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir

th a t –

that is

w h a t r is k

m i ti g a ti o n is a ll a b o u t .
C H A I R P E R S O N : Ye s . N o t p u tt i n g a l l y o u r e g g s in o n e b a s k e t?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : O k a y, th a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C : O f c o u r s e C h a ir in t e r e s ti n g p o in t
20

arises

out what happened

la t e r

in

D e c e m b e r.

I suppose

one

e x p l a n a t io n c o u l d c o n s i d e r a b l y b e I k n e w w h a t w a s g o i n g t o l a t e r i n
D e c e m b e r b u t t h a t w o u ld c r e a t e f u r t h e r p r o b l e m s fo r t h e d e c i s i o n
makers.
CHAIRPERSON: No that is true.
A D V PA U L J O S E P H P R E TO R I U S

SC:

But

Page 73 of 143

we

do

not

have

any

05 JUNE 2019 – DAY 106
in d i c a t io n o f t h a t y e t C h a ir. L e t u s d e a l t h e n w i th p a g e 3 4 . A g a i n j u s t
t o p la c e p a g e 3 4 i n c o n te x t y o u a r e t a l k i n g a b o u t t h e c h a n g e o f m i n d ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d th e j u s t i fic a ti o n - p o s s i b l e

ju s t i fic a ti o n f o r a n y fix e d r a t e s w a p .

W o u l d y o u d e a l w it h t h e f o u r

b u ll e ts t h e n o n p a g e 3 4 – t h e f o u r s u b b u l l e ts ?
D R J O N AT H A N Z O R A H B L O O M : C h a ir I w o u ld lik e to a d d r e s s t h e f o u r
s u b b u l l e t s a s A d v o c a t e Pr e t o r i u s i n d i c a t e s t h a t t h e s tr a t e g y a d o p t e d …
A D V PA U L J O S E P H P R E TO R I U S S C : W e l l …
10

D R J O N AT H A N Z O R A H B L O O M : S o r r y.
A D V PA U L J O S E P H P R E TO R I U S S C :

I f y o u c o u l d d e a l w i th t h e

in tr o d u c t i o n a s w e ll .
D R J O N AT H A N Z O R A H B L O O M :

O k a y. I n my v i e w t h e r e c o u l d b e n o

ju s t i fic a ti o n fo r t h e e x e c u t i o n o f th e e x tr e m e c h a n g e o f t h e fl o a t i n g d e b t
t o fi x e d d e b t a n d t h e m a n n e r c o n s i d e r e d a n d u l ti m a t e l y e x e c u t e d a n d
t h e r e a s o n f o r t h o s e a r e t h e f o l l o w i n g : t h e s tr a t e g y t h a t w a s a d o p te d
t h is f ix e d r a t e s tr a t e g y t h a t I a m r e fe r r i n g t o a s s u m e s a n e n v ir o n m e n t
o f h i g h i n t e r e s t r a te s a n d b e c a u s e w e a r e r e f e r r in g t o t h e c lu b l o a n
o v e r a p e r i o d o f 1 5 y e a r s . T h i s w o u ld – t h is w o u l d i m p l y t h a t Tr a n s n e t
20

is l o c k e d i n t o t h e i n t e r e s t r a t e s w a p a g r e e m e n t fo r 1 5 y e a r s . S o t h a t t h a t – i t is t h e p o i n t t h a t w e w e r e d is c u s s i n g p r e v io u s ly C h a ir w h e r e
y o u a r e u s i n g tw o y e a r f o r e c a s ts t o m a k e y o u r d e c is i o n o f fix i n g r a t e s
a n d t h e n y o u s t il l f ix t h e w h o l e a m o u n t a n d – b u t y o u fo r g e t a b o u t y o u
a r e a c tu a lly l o c k i n g i n Tr a n s n e t f o r 1 5 y e a r s a n d i t i s n o t a q u e s ti o n o f
s w a p p in g b a c k fr o m fix e d t o f lo a ti n g .

It is a – i t is – i t i s t h e o t h e r

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05 JUNE 2019 – DAY 106
around.
C H A I R P E R S O N : J a , o n c e i t is fix e d i t is f ix e d . O n c e it is fl o a t in g i t i s
fl o a ti n g ?
A D V PA U L J O S E P H P R E TO R I U S S C :
D R J O N AT H A N Z O R A H B L O O M :

Ye s y o u c a n – y o u c a n s w a p fr o m

fl o a ti n g t o f ix e d …
CHAIRPERSON: Ja.
A D V PA U L J O S E P H P R E TO R I U S S C :
D R J O N AT H A N Z O R A H B L O O M : B u t i f y o u – i f y o u fo r i n s t a n c e e n te r
10

in t o a n a g r e e m e n t w i th a c o u n te r p a r ty a n d t h a t c o u n t e r p a r ty s a y s y o u
p a y m e f ix e d a n d I w i ll p a y y o u f lo a ti n g . T h e n t h e r e i s a r i s k in v o lv e d .
S o t h e c o u n t e r p a r ty s a y s lis t e n I a m – I a m e n t e r i n g i n to t h i s a g r e e m e n t
o v e r a l o n g p e r io d o f ti m e .

S o i f y o u w a n t to g e t o u t a t a n y p o in t in

ti m e o r e x it t h e p o s i t io n - a s i t i s c a l l e d - y o u a r e g o i n g t o h a v e t o p a y
f o r t h a t a n d t h a t is w h a t – a n d th a t is w h e r e t h is w h o le s it u a ti o n
becomes (intervenes).
A D V PA U L J O S E P H P R E TO R I U S S C : W e w il l c o m e to t h a t c a l c u l a t i o n
la t e r.
D R J O N AT H A N Z O R A H B L O O M :
20

Ye s C h a ir.

S o t h e s e c o n d o n e is i n

m y v i e w i t is n o t p o s s i b l e t o p r e d i c t in t e r e s t r a t e s s o fa r in t o t h e f u tu r e .
A d o p t i n g a n e x tr e m e ( in t e r v e n e s ) .
C H A I R P E R S O N : T h e y s o f a r r e l a t e s to – t o 1 5 y e a r s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : O k a y, a lr ig h t .
D R J O N AT H A N Z O R A H B L O O M :

S o i n – i t i s n o t p o s s i b l e t o p r e d ic t

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05 JUNE 2019 – DAY 106
in t e r e s t r a te s s o f a r i n t o th e f u tu r e a d o p ti n g a n e x tr e m e a d j u s t m e n t to
t h e d e b t s tr u c tu r e fr o m fl o a t in g to fi x e d r a t e s .
ir r e s p o n s ib l e .

I n m y v ie w i t i s

T h is – t h is is p a r t ic u l a r ly i m p o r t a n t b e c a u s e i t c o n f e r s

t h e la r g e r i s k a n d p o t e n t ia l l o s s o n Tr a n s n e t.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d y o u w i ll t e l l th e C h a ir t h a t

Tr a n s n e t is in f a c t s u ffe r i n g lo s s e s n o w ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir. I w il l g i v e y o u
the numbers.
C H A I R P E R S O N : J u s t t o i n t e r r o g a t e t h a t s e c o n d b u l l e t p o in t b e f o r e y o u
10

move on.

W e r e y o u – w h e t h e r o n e is ta l k in g a b o u t a f ix e d r a t e o r a

fl o a ti n g in t e r e s t r a te r e g i m e o n e d o e s t a k e th e r is k t h a t t h i n g s m ig h t
u l ti m a t e ly t u r n o u t i n s u c h a w a y t h a t o n e r e g r e ts h a v i n g c h o s e n a
p a r t ic u l a r r e g i m e a t t h e b e g i n n i n g o f t h e t r a n s a c t io n b u t th a t is
s o m e t h i n g y o u c a n o n ly m a k e a j u d g m e n t o n a t t h e e n d o f t h e w h o l e
period.

Is i t n o t?

Yo u – y o u – i f i t is a 1 5 y e a r l o a n y o u c a n n o t

n e c e s s a r i ly b l a m e t h e p e r s o n w h o m a d e a j u d g m e n t c a ll a t t h e
b e g in n i n g if t h r e e y e a r s d o w n th e li n e i t l o o k s l ik e i t w a s s u c h a te r r i b l e
m is t a k e b e c a u s e y o u d o n o t k n o w w h e t h e r b y t h e e n d o f t h e 1 5 y e a r
p e r i o d y o u w il l a c t u a ll y b e s m ili n g s a y i n g a c t u a l ly i t h a s w o r k e d o u t
20

q u i te f in e . I s i t n o t ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir th a t is p o s s i b l e b u t I w o u ld –

w h e n w e g e t t o d is c u s s i n g t h e n u m b e r s a li t tl e l a te r o n …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : I w il l – I w i ll g iv e y o u a n in d i c a t io n o f
– o f th e d i le m m a …

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05 JUNE 2019 – DAY 106
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : T h a t e x i s ts a n d t h e r e f o r e …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :
y o u a r e r i g h t.

I t b r i n g s m e b a c k t o t h e p o in t t h a t

O v e r a p e r i o d ti m e i t c o u l d e q u a l o u t o r i t c o u ld b e

b e n e fic i a l …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : O r w h a t e v e r t h e c a s e m a y b e …
CHAIRPERSON: Hm.
10

D R J O N AT H A N Z O R A H B L O O M :

B u t in t h is p a r ti c u l a r – i t i s – i t i s

a ls o i m p o r t a n t t o u n d e r s t a n d t h a t th a t y o u m i t ig a te y o u r r i s k b y m a k in g
d e c is i o n s t h a t a r e ta k e n o v e r a p e r i o d o f t i m e .

F o r in s ta n c e - a s w e

w e r e d i s c u s s in g – o n l y t a k i n g a s m a ll p o r t i o n o f t h e d e b t a n d f ix in g i t …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : G iv e n t h e u p w a r d m o v e m e n t i n r a t e s
…
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : A n d th e n d o i n g t h a t s a m e p r o c e s s a s
you – as you proceed.
20

CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

I n o th e r w o r d s th e b a l a n c e th a t y o u

achieve …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

W o u l d b e b e c a u s e th e n y o u w o u l d

b r i n g m o r e f l o a t in g a t a l a te r s ta g e i n f r o m o t h e r d e b t i n to y o u r …

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05 JUNE 2019 – DAY 106
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : Yo u r d e b t b o o k – i f I c a n c a l l i t th a t .
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : A n d t h a t w o u ld s t a r t b a la n c i n g it o u t.
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

S o – s o t h e r e – i t is a l l a b o u t a

s tr a t e g y …
C H A I R P E R S O N : Ye s , y e s .
D R J O N AT H A N Z O R A H B L O O M : B u t w h a t w e s e e h e r e i s e x tr e m e …
10

C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : M o v e m e n ts …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : O r e x tr e m e d e c is i o n s t o – t o fi x o r t o
e n t e r i n t o a g r e e m e n t s f o r v e r y la r g e a m o u n ts o f m o n e y.
CHAIRPERSON:

S o b a s ic a l ly th e s tr a t e g i e s s e e k t o m a k e s u r e t h a t

over – for example – a 15 year period you are not going to just keep on
h o p in g t h a t a t t h e e n d o f t h e 1 5 y e a r p e r io d t h i n g s w i ll w o r k o u t f in e .
A s t h in g s g o b a d d u r i n g t h e 1 5 y e a r p e r i o d y o u j u s t h o p e t h a t a t th e
e n d i t w il l w o r k o u t 1 5 .
20

T h e s tr a t e g ie s a r e m e a n t t o m i t ig a t e s o th a t

y o u r e x p e c t a ti o n is b a s e d o n w h a t y o u h a v e p u t in p l a c e to tr y a n d
m i ti g a te a n y p o s s i b l e a d v e r s e c h a n g e s .
D R J O N AT H A N Z O R A H B L O O M :

T h a t i s c o r r e c t C h a ir b u t i t m u s t b e

d o n e c o r r e c tl y.
C H A I R P E R S O N : M u s t b e d o n e c o r r e c tl y, j a .
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.

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05 JUNE 2019 – DAY 106
C H A I R P E R S O N : It c a n n o t b e g u e s s w o r k ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is t r u e C h a ir.
C H A I R P E R S O N : O k a y, a lr ig h t .
A D V PA U L J O S E P H P R E TO R I U S S C :

I f y o u w o u l d th e n g o th r o u g h

b e c a u s e y o u h a v e n o w d e a l t w i t h s o m e o f th e is s u e s t h a t y o u in t e n d e d
to deal with.

T h e f o u r s u b b u l le t s o n p a g e 3 4 a s p a r t o f t h e f ir s t

p a r a g r a p h . Yo u d e a lt w i t h th e fir s t o n e .
D R J O N AT H A N Z O R A H B L O O M : A n d t h e s e c o n d o n e . In – i n th e t h i r d
o n e i n m y v i e w to m i ti g a t e a g a i n s t p a y i n g s ig n if ic a n t fe e s a n d a s - t h i s
10

w e h a v e d i s c u s s e d C h a ir - a p h a s e d a p p r o a c h in s m a ll in c r e m e n t s w o u l d
have

been

prudent

based

on

evolving

market

c o n d i t io n s

when

c ir c u m s ta n c e s d i c t a t e d .
A D V PA U L J O S E P H P R E TO R I U S S C : Th e l a s t b u ll e t .
D R J O N AT H A N Z O R A H B L O O M :

T h e n t h e la s t b u ll e t i s t h e Tr a n s n e t

G r o u p Tr e a s u r e r a lt h o u g h r e ly in g o n t h e B u r e a u fo r E c o n o m ic R e s e a r c h
in t e r e s t r a te f o r e c a s ts a s s u m e d a v e r y s t e e p tr a j e c t o r y w i th – o f lo n g
t e r m i n te r e s t r a te s a n d th e r e w a s n o i n d ic a ti o n a t t h a t p o in t i n t i m e t h a t
s u c h a d r a m a ti c u p w a r d m o v e m e n t in i n te r e s t r a t e s w o u l d – w o u l d
o c c u r.
20

A D V PA U L J O S E P H P R E TO R I U S S C :

R ig h t .

S o fa r w e h a v e a n

u n e x p la in e d c h a n g e o f m i n d fr o m f lo a ti n g t o f ix e d – 2 3 N o v e m b e r 2 0 1 5
to 4 December 2015?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S

SC:

It

is

i n e x p l ic a b l e

u n r e a s o n a b le o n y o u r a s s e s s m e n t a n d in y o u r o p i n i o n ?

Page 79 of 143

and

05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : T h a t is t r u e C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : To p u t it s i m p ly i n la y l a n g u a g e
h a d th e p r o p e r i n v e s ti g a ti o n s b e e n d o n e u p fr o n t t h a t – a n d t h e p o l ic y
b e e n fo ll o w e d t h e f ix e d r a t e if i t w a s a d v is a b l e s h o u l d h a v e b e e n
e n t e r e d i n t o i n th e fir s t p la c e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d n o t i n v o lv i n g a c h a n g e o f

m i n d o v e r a f e w d a y s b u t w h a t w a s t h e c e r t a i n o u tc o m e o f th is c h a n g e
o f m i n d ? Yo u d e a l w i th t h a t in t h e s e c o n d b u ll e t o n p a g e 3 4 .
10

D R J O N AT H A N Z O R A H B L O O M : C h a ir a s a c o n s e q u e n c e o f t h e – t h e
way

th a t

the

t r a n s a c t io n s

were

s tr u c t u r e d

and

i m p le m e n t e d

or

e x e c u te d . T h i s w o u l d r e s u lt i n s ig n i f ic a n t f e e s f o r R e g i m e n ts a n d c a s h
fl o w f o r th e c o u n t e r p a r t y.

A t – o b v io u s ly a t th e e x p e n s e o f Tr a n s n e t

b e c a u s e a s w e – a s w e h a v e d is c u s s e d t h e r e c a n o n ly b e o n e w i n n e r in
t h is – i n t h i s tr a n s a c ti o n a n d t h e r e f o r e t h is o u tc o m e w a s i n f a c t t h e
o n ly r e li a b l e p r e d i c ta b l e o u t c o m e a t t h e t i m e . S o in s u m m a r y I a m o f
t h e v i e w t h a t t h i s w a s ir r e s p o n s i b l e , u n f o u n d e d a n d u n w a r r a n t e d t o fix
s u c h a l a r g e p o r ti o n o f th e d e b t a t t h a t ti m e . I f a p o r t io n o f t h e d e b t
w a s to o b e fix e d i t s h o u l d h a v e b e e n a s m a l l p o r t io n in r e a c t io n t o a n –
20

a n a n tic ip a t e d in c r e a s e in in t e r e s t r a te s o r s o m e o t h e r s tr a te g y t h a t
m i g h t h a v e b e e n p a r t o f t h e Tr a n s n e t r e q u ir e m e n t b u t t o – to fi x 4 . 5
b i ll io n a t t h a t p o i n t in t i m e a n d t h e n a f u r t h e r 7 . 5 b il li o n i n t h e – i n t h e
n e x t c o u p l e o f m o n th s a p p e a r t o – d i d n o t a p p e a r to b e j u s t i fi e d i n th e
c o n te x t o f t h e i n fo r m a ti o n a v a il a b l e .
A D V PA U L J O S E P H P R E TO R I U S S C : A n d y o u e x p la i n t h a t o r y o u a r e

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05 JUNE 2019 – DAY 106
a b o u t t o e x p l a in t h e l o s s e s in c u r r e d b y Tr a n s n e t a s a r e s u l t o f t h e s e
a r r a n g e m e n ts .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

W h ic h y o u s a y w e r e i ll a d v is e d

in t h e fi r s t p la c e ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

Let us go to page 35 then and

y o u s a y i n r e la t io n t o a g r a p h th a t w e a r e a b o u t t o i n tr o d u c e t w o p o i n ts
s h o u l d b e m a d e . W h a t a r e t h o s e p o i n ts ?
10

D R J O N AT H A N Z O R A H B L O O M :
u n a c c e p t a b l e to

S o i n – i n o th e r w o r d s i t w a s

e n t e r i n t o a f l o a t in g r a t e a l o n e a n d t h e r e a f t e r

e ffe c tiv e l y e n te r i n t o a fi x e d r a te lo a n a s w e h a v e b e e n d is c u s s i n g . B y
doing

t h is

Tr a n s n e t

ended

up

paying

i n te r e s t

at

a

fi x e d

rate

s u b s t a n t ia ll y h i g h e r t h a n i t w o u ld h a v e h a d i t e n te r e d in t o a fix e d r a te
lo a n i n t h e f ir s t p l a c e .
A D V PA U L J O S E P H P R E TO R I U S S C :

Right.

Just pause there.

Yo u

s a y t h e r e i n d i c a t io n s t h a t m a k e i t m o r e p r o b a b le t h a n n o t in y o u r e x p e r t
o p i n i o n t h a t e v e n w h e n th e y e n t e r e d in t o th e fl o a t in g l o a n – f l o a t in g
in t e r e s t r a t e l o a n – t h e y k n e w a lr e a d y a n d w o u ld h a v e c l a i m e d f o r
20

e n t e r in g - c h a n g in g i t e ff e c ti v e ly t o a fi x e d l o a n – f ix e d r a t e l o a n –
la t e r ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

Right but when it decided in

D e c e m b e r t o e ff e c ti v e ly - w e l l n o b e c a u s e t h a t is w r o n g ly p u t b e c a u s e
w e k n o w t h a t o n y o u r o p in i o n t h e d e c i s io n w a s m a d e e v e n b e f o r e

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05 JUNE 2019 – DAY 106
2 3 N o v e m b e r. W h e n i t i m p le m e n t e d th e s w a p e ff e c t iv e ly to c h a n g e th e
fl o a ti n g r a t e l o a n t o a fi x e d r a t e l o a n e a r ly in D e c e m b e r 2 0 1 5 d i d i t p a y
a fix e d r a te in t h e s w a p e q u iv a l e n t to t h e fi x e d r a te i t w o u ld h a v e p a id
h a d th e l o a n b e e n e n t e r e d in t o o n a f ix e d t e r m – fi x e d r a t e b a s is i n t h e
fir s t p la c e ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a i r b e c a u s e t h e r a te – t h e r a te
t h a t w a s u l ti m a t e ly a g r e e d a s p a r t o f t h e s w a p a g r e e m e n t a n d
c o m p a r e d t o t h e m a r k e t f ix e d r a te – i f I c a n c a ll i t t h a t – a t t h a t p o in t i n
ti m e w e r e s u b s ta n ti a l ly d i ffe r e n t . A s I i n d ic a t e d p r e v i o u s l y t h e m a r k e t
10

fi x e d r a t e o r t h e m i d m a r k e t r a te t h a t o n e w o u l d u s e w o u l d h a v e b e e n
a d j u s te d s l ig h tl y t o m a k e p r o v is i o n f o r a c o u p le o f o th e r li t t le r is k
f a c to r s t h a t o n e w o u l d – t h a t – t h a t c o u n t e r p a r t ie s n o r m a ll y i n c l u d e b u t
n o t a t t h e s a m e l e v e l a s th e r a te s t h a t t h e y w e r e fi n a l ly e n t e r e d in t o .
A D V PA U L J O S E P H P R E TO R I U S S C : I n f a c t w h a t y o u a r e g o i n g t o t e l l
t h e C h a ir i n g r a p h ic f o r m i n a m o m e n t is t h a t t h e f lo a ti n g – t h e f ix e d
r a te u l t i m a te ly p a id o r p a y a b l e b y Tr a n s n e t w a s m u c h h i g h e r th a n t h e
fi x e d r a te , s u b s t a n t ia ll y h ig h e r i n y o u r v ie w th a n t h e fix e d r a t e th a t
Tr a n s n e t w o u l d h a v e p a i d h a d i t e n t e r e d i n t o a fi x e d t e r m r a t e – a fi x e d
r a te a g r e e m e n t i n th e fir s t p la c e .

20

D R J O N AT H A N Z O R A H B L O O M : C o r r e c t i n t e r m s o f t h e m a r k e t.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d y o u s a y t h a t ’s q u it e a p a r t

fr o m f e e s a n d c o s t?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : L e t ’s g o t o p a g e 3 6 t h e n a n d p u t
up the graph.

N o w t h is i s a – w h a t y o u c a ll a s t a t s b a r g r a p h ,

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05 JUNE 2019 – DAY 106
s t a tis t ic a l b a r g r a p h .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y w h a t d o th e b l u e li n e s

in d i c a t e ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir t h e b l u e li n e s i n d ic a t e t h e

fl o a ti n g r a t e o v e r t h e p e r i o d s ta r t i n g o n t h e 0 1 / 1 2 / 2 0 1 5 i t w a s w h e n t h e
d r a w n d o w n o f th e lo a n o c c u r r e d t o 0 1 /1 0 / 2 0 1 8 b y w a y o f e x a m p l e .
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s a n d o n t h e le f t- h a n d s i d e w e
s e e f r o m n o u g h t to 1 2 i n t e r e s t r a te le v e ls .
10

D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

S o if o n e lo o k s a t e a c h b lu e

b a r, o n e w il l s e e h o w i n t e r e s t r a t e s f lo a t e d b e t w e e n 8 a n d 1 0 p e r c e n t
o v e r th a t p e r io d .
D R J O N AT H A N Z O R A H B L O O M :

Th a t ’s c o r r e c t C h a ir a n d i f y o u lo o k

a t th a t y o u w i ll a ls o s e e – o k a y o n e n e e d s t o l o o k a t t h e a x is , I m e a n ,
in o t h e r w o r d s o n t h e l e f t - h a n d s id e t h a t y o u w e r e r e fe r r i n g t o b u t a l s o
y o u w il l a ls o s e e t h a t t h e r e ’s n o – t h e r e ’s n o s u b s t a n t i a l m o v e m e n t i n
t h e b l u e b a r s , th e y a l l h o v e r a r o u n d t h e s a m e a r e a , i f I c a n p u t i t th a t
w a y a n d t h e n t h e li n e a t t h e t o p , th e b l a c k li n e w h e r e it … ( in t e r v e n ti o n ) .
20

A D V PA U L J O S E P H P R E T O R I U S S C : R i g h t a t t h e to p o f t h e g r a p h t h e
s o l i d b la c k l in e .
D R J O N AT H A N Z O R A H B L O O M :

T h a t ’s c o r r e c t C h a ir, w h e r e i t

in d i c a t e s 11 .8 3 in t h e c o r n e r, th a t is t h e f i x e d r a te t h a t w a s c o n c l u d e d ,
n o t t h e m a r k e t r a te , t h e fi x e d r a t e t h a t w a s c o n c l u d e d a s p a r t o f t h e
a g r e e m e n t b e t w e e n Tr a n s n e t a n d N e d b a n k a n d t h a t ’s w h a t Tr a n s n e t

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05 JUNE 2019 – DAY 106
pays Nedbank every quarter when a swap occurs.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y s o w h a t is t h e d i ff e r e n c e

b e t w e e n th e b l u e a n d t h e b la c k ?
D R J O N AT H A N Z O R A H B L O O M : C h a i r th e d i ff e r e n c e is , is t h e – is a n
in d i c a t io n t h a t t h e fl o a t i n g r a t e s , in o t h e r w o r d s – o r th e fl o a ti n g r a t e s ,
ja h a v e n o t i n c r e a s e d o r h a v e n o t r e a c h e d t h e f ix e d r a t e le v e l o f 11 . 8 3
a t a n y ti m e o v e r t h a t p e r i o d t h a t w e a r e a s s e s s i n g a t th e m o m e n t .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o in s te a d o f p a y in g t h e r a t e

in d i c a t e d b y t h e b l u e b a r s , b e t w e e n 8 a n d 1 0 p e r c e n t o n a fl o a ti n g r a te
10

b a s is , Tr a n s n e t h a s e n d e d u p p a y in g a m u c h h ig h e r r a t e o f i n t e r e s t
in d i c a t e d b y t h e b la c k l in e ?
D R J O N AT H A N Z O R A H B L O O M :

T h a t ’s c o r r e c t C h a ir a n d – s o

s i m p l is t ic a ll y p u t , I w a n t to e m p h a s i s e t h a t, t h e r e d b a r s r e p r e s e n t a l l
t h e lo s s e s th a t Tr a n s n e t o c c u r r e d – t h a t a c c r u e d t o Tr a n s n e t .
A D V PA U L J O S E P H P R E TO R I U S S C : J u s t a r i s i n g fr o m t h e s w a p ?
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s j u s t a r i s i n g fr o m t h e s w a p .
A D V PA U L J O S E P H P R E TO R I U S S C :

J u s t a r is in g fr o m t h e d i ff e r e n c e

in i n t e r e s t r a t e b a s is .
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.
20

A D V PA U L J O S E P H P R E TO R I U S S C : T h o u g h y o u s a y th e r e a r e o t h e r
c o s ts f a c t o r e d in .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s r ig h t , I th i n k it ’s i m p o r t a n t t o
a ls o n o t e th a t th e – i n c l u d e d i n t h e 11 . 8 3 w o u l d b e e x e c u t io n f e e s
b e c a u s e t h a t i s h o w – s o t h e r a t e p a i d t o N e d b a n k w o u ld i n c l u d e th e
e x e c u ti o n f e e s w i th i n t h a t 11 .8 3 fe e … ( i n t e r v e n ti o n ) .

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A D V PA U L J O S E P H P R E T O R I U S S C :

A n d t h e r a te p a i d t o R e g i m e n ts

t o o w o u ld c o m e o u t o f th e l o s s e s o f Tr a n s n e t.
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y c a n w e g o to p a g e 3 7 t h e n ,
h e r e y o u d e a l w i t h lo s s e s t o Tr a n s n e t o n a d i ff e r e n t b a s is . I t ’s a li t t le
b i t m o r e c o m p l ic a te d w o u ld y o u e x p l a i n i t p l e a s e ?
D R J O N AT H A N Z O R A H B L O O M : C h a ir I ’ m g o i n g t o f o c u s o n t h e to t a l s ,
if I m a y a t t h e b o t to m o f t h e t a b l e .
A D V PA U L J O S E P H P R E TO R I U S S C : A lr ig h t b u t b e fo r e y o u g o t h e r e ,
10

p e r h a p s w e s h o u ld e x p la in t h e c o l u m n o n t h e r i g h t - h a n d s i d e , s e c o n d
fr o m t h e r i g h t- h a n d s id e o r th e r i g h t- h a n d m a r g in c a ll e d c o s t s , i t r e a d s
o f e x is t , th a t s h o u l d r e a d , c o s t o f e x i t .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A c o n c e p t y o u ’v e r e fe r r e d t o .

B a s ic a l ly i f a t a n y p o in t i n ti m e t h e p a r ti e s t o t h e s w a p w e r e t o s it d o w n
a n d Tr a n s n e t w o u ld s a y t o i t ’s c o u n t e r p a r t N e d b a n k , lo o k , I ’ m n o t h a p p y
w i t h o u r a r r a n g e m e n t I w a n t o u t , Tr a n s n e t w o u l d s a y, a s I u n d e r s t a n d
y o u r e v i d e n c e t o d a t e , y e s I’ ll l e t y o u o u t b u t t h e n y o u m u s t p a y m e
w h a t I w o u l d h a v e e a r n e d i n t h e b a l a n c e o f th e te r m .
20

D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : T h e p r e s e n t d a y v a lu e o f w h a t I
w o u ld h a v e e a r n e d fo r t h e r e m a i n d e r o f t h e t e r m .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C :

S o t h a t ’s w h a t y o u r e f e r t o a s

t h e , c o s t o f e x i t.

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M :

C o r r e c t C h a ir.

A D V PA U L J O S E P H P R E TO R I U S S C : B u t it ’s a r e li a b l e f o r e c a s t o n t h e
o th e r h a n d b y w a y o f c o r o ll a r y o f Tr a n s n e t’s l o s s e s , n o t o n ly w o u ld i t
b e a f o r e c a s t i m p o s e d b y N e d b a n k o f w h a t i t w o u l d h a v e p r o f it e d f o r
t h e b a la n c e a f t e r t h e e x i t t o t h e t e r m i n a t i o n o f t h e a r r a n g e m e n t b u t i t
w o u ld a ls o b e a n in d ic a t o r, a s I u n d e r s ta n d y o u r e v id e n c e o f t h e lo s s e s
t h a t Tr a n s n e t w o u ld h a v e c o n t in u e d to i n c u r, s o th e o n e m a tc h e s t h e
o th e r.
D R J O N AT H A N Z O R A H B L O O M :
10

C o r r e c t C h a ir a t t h e 1 4 t h o f M a y i n

t e r m s o f t h is p a r tic u la r t a b l e b u t w h a t i s i m p o r t a n t , C h a ir, i s j u s t to n o te
t h a t – i f I m a y, th e r e a li s e d c a s h - fl o w s , i n o th e r w o r d s t h e th ir d c o l u m n
fr o m th e r i g h t , th e 8 5 0 m il li o n r a n d is t h e l o s s t h a t Tr a n s n e t h a s
o c c u r r e d – o r th e lo s s t h a t h a s a c c r u e d t o Tr a n s n e t to d a te . I n o th e r
w o r d s , p u t a n o th e r w a y, t h a t is t h e c a s h - fl o w – t h a t’s t h e a m o u n t o f
m o n e y t h a t Tr a n s n e t h a v e a c t u a l ly p a id t o t h e c o u n t e r p a r t y a s t h e – a s
part of the agreement.
A D V PA U L J O S E P H P R E TO R I U S S C : I n r e l a ti o n to e a c h p o r t i o n o f t h e
lo a n ?
D R J O N AT H A N Z O R A H B L O O M :

20

I n r e l a ti o n t o e a c h p o r t io n o f t h e

lo a n , c o r r e c t . S o t h is is th e t o t a l 1 2 b i ll io n r a n d C l u b L o a n , in t e r m s o f
t h e c o s t o f e x i t … ( i n te r v e n ti o n ) .
A D V PA U L J O S E P H P R E TO R I U S S C :

W e l l le t ’s fir s t e x p l a i n w h a t is

t h e r e a l is e d c a s h - f lo w, w h a t is t h a t a m o u n t ?
D R J O N AT H A N Z O R A H B L O O M : T h o s e a r e th e d i ff e r e n c e s , r e m e m b e r
w e s a i d th a t Tr a n s n e t d o e s n o t w r i t e o u t a c h e q u e t o N e d b a n k a n d

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05 JUNE 2019 – DAY 106
Nedbank

does

not

w r i te

out

a

cheque

to

Tr a n s n e t

so

the

d i ff e r e n c e … ( in t e r v e n ti o n ) .
A D V PA U L J O S E P H P R E TO R I U S S C : U l ti m a t e l y p a i d n o w w e k n o w b y
Tr a n s n e t t o N e d b a n k .
D R J O N AT H A N Z O R A H B L O O M :

Is 8 5 0 m ill i o n c o r r e c t .

A D V PA U L J O S E P H P R E TO R I U S S C : O v e r th a t p e r i o d o f t i m e u p t o 1 4
May 2019.
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : F r o m D e c e m b e r 2 0 1 5 .
10

D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o i t h a s , o n t h i s s w a p o f r is k

lo s t , y o u s a y, 8 5 0 m il lii o n r a n d ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

And if one was to forecast the

lo s s o v e r t h e w h o l e p e r i o d o f t h is s w a p a r r a n g e m e n t w h a t in f o r m a t io n
w o u ld y o u u s e ?
D R J O N AT H A N Z O R A H B L O O M :

T h e n o n e w o u l d l o o k a t th e la s t

c o l u m n C h a ir, s o t h i s w o u l d c o s t Tr a n s n e t , j u s t o n t h e 1 2 b il li o n C lu b
L o a n , 1 . 8 b il li o n .
20

A D V PA U L J O S E P H P R E TO R I U S S C : J a w e ll n o , y o u w o u l d a d d t o t h e
8 5 0 m i lli o n w h a t a m o u n t?
D R J O N AT H A N Z O R A H B L O O M : 9 8 0 mi ll i o n .
A D V PA U L J O S E P H P R E TO R I U S S C : Th a t ’s th e c o s t to t h e e x i t.
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : T h a t’s th e f o r e c a s t l o s s o f p r o fi t

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05 JUNE 2019 – DAY 106
t o N e d b a n k , i t ’s c o r o l la r y is t h e f o r e c a s t e x p e n s e a n d lo s s to Tr a n s n e t .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

I t w o u l d h a v e lo s t o v e r t h e

period?
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y th a t ’s 9 8 0 m i ll io n g iv i n g a

t o t a l l o s s o f t h i s w h o l e e x e r c i s e a m o u n t i n g to ?
D R J O N AT H A N Z O R A H B L O O M : 1 . 8 b il li o n r a n d .
A D V PA U L J O S E P H P R E TO R I U S S C : S o t h i s e x e r c is e , c o n s tr u c t e d i n
10

t h e w a y i t w a s c o n s tr u c te d c o s t Tr a n s n e t o r w ill c o s t Tr a n s n e t o v e r t h e
f u ll t e r m 1 . 8 b il li o n r a n d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : Th e p a r t ie s t o p r o f i t a r e w h o m ?
D R J O N ATH A N Z O R A H B L O O M : W e l l in c l u d e d i n t h e s e c o s t s w o u l d b e
t h e f e e – w e ll t h e f e e p a id t o t h e e x e c u t in g a g e n t a n d t h e b e n e f it , i f
o n e c a n p u t i t th a t w a y, to t h e c o u n t e r p a r t y.

S o i n c lu d e d i n th o s e

r e a l is e d c a s h - f lo w s a r e t h e fe e s p a i d t o th e c o u n te r p a r ty.
A D V PA U L J O S E P H P R E T O R I U S S C :

A lr i g h t o n th e n e x t p a g e y o u

d e a l w it h t h e Tr a n s n e t p o li c y e n ti t le d t h e Fi n a n c i a l R i s k M a n a g e m e n t
20

Fr a m e w o r k , w o u ld y o u j u s t – y o u ’ v e d e a l t w i t h it b u t b y w a y o f s u m m a r y
w o u ld y o u p l e a s e ju s t p l a c e p a g e 3 8 o n r e c o r d .
D R J O N AT H A N Z O R A H B L O O M :

S o C h a ir w e ’v e r e f e r r e d t o t h e

Fi n a n c i a l R is k M a n a g e m e n t Fr a m e w o r k P o l ic y o n s e v e r a l o c c a s io n s t h is
m o r n in g b u t i t r e g u l a t e s , a m o n g s t o t h e r s , t h e d e a d p o r t f o l i o a n d
tr a n s a c ti o n p a r a m e te r s , i n o t h e r w o r d s , a m o n g s t o t h e r th i n g s t h e s iz e

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05 JUNE 2019 – DAY 106
o f t h e d e b t b o o k t h e r a t io o f f ix e d t o fl o a t i n g e tc e te r a a n d th e n th e r i s k
m a n a g e m e n t p r a c t ic e s w i th i n t h e Tr a n s n e t Tr e a s u r y e n v ir o n m e n t in
t e r m s o f h e d g in g th e s w a p s o r h e d g in g t h e r is k s t h r o u g h t h e u s e o f
swaps.
A D V PA U L J O S E P H P R E TO R I U S S C :

S o h o w b ig t h e d e b t b o o k c a n

b e , i n o th e r w o r d s , h o w m u c h y o u c a n b o r r o w a n d h o w m u c h y o u s h o u l d
b e i n d e b t a n d t h e r a t i o o f fi x e d t o f l o a t in g , w e h a v e d e a l t w i th t h a t a s
w e ll a s h o w y o u s h o u ld g o a b o u t h e d g i n g r is k .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
10

A D V PA U L J O S E P H P R E TO R I U S S C : O k a y t h e n th e s e c o n d b u l le t ?
D R J O N AT H A N Z O R A H B L O O M :

T h e fr a m e w o r k d ic ta t e s th a t t h e

d e c is i o n t o s e c u r e f u n d in g o n a f ix e d o r fl o a ti n g i n te r e s t r a t e b a s is
s h o u l d b e t a k e n a t t h e t i m e o f c o n c l u d in g t h e f u n d i n g tr a n s a c ti o n .
W e ’v e u s e d t h e t e r m a t t h e s o u r c e a n d th a t is w h a t i t’s a b o u t , t o a v o i d
u n n e c e s s a r y c o s ts o f r e v is i n g th e p o s i ti o n a t a l a te r d a te a n d h a d th is
b e e n d o n e , Tr a n s n e t w o u l d h a v e s a v e d b i lli o n s b e c a u s e i t w o u l d n ’ t b e
n e c e s s a r y t o p a y e x e c u ti o n f e e s a n d i t w o u ld n ’t h a v e b e e n – a n d n o
in t e r e s t r a t e s w a p w o u ld h a v e b e e n r e q u ir e d .
A D V PA U L J O S E P H P R E TO R I U S S C :
20

On page 39, apart from

s u m m a r i s i n g m u c h o f w h a t y o u ’ v e t o l d t h e C h a i r y o u d e a l w i t h e v e n ts
w h ic h m i g h t i m p l y a n d n e e d to c h a n g e m in d fr o m fl o a ti n g t o f ix e d o r
fr o m fi x e d to f lo a ti n g , w o u l d y o u d e a l w i th t h a t p l e a s e ?
D R J O N AT H A N Z O R A H B L O O M : S o C h a i r in t e r m s o f th e ti m e l in e a n d
ju s t i fic a ti o n fo r th e C l u b L o a n , b y w a y o f s u m m a r y t h e C lu b L o a n w a s
c o n c l u d e d – c o n tr a c te d o n t h e 2 3 r d o f N o v e m b e r, th e f ir s t d r a w d o w n o f

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t h e 4 . 5 b i ll io n o c c u r r e d o n th e 1 s t o f D e c e m b e r a n d t h r e e d a y s l a te r t h e
fir s t t r a n c h e o f t h o s e in t e r e s t r a te s w a p s , i n o th e r w o r d s t h e 4 . 5 b i ll io n
w a s c h a n g e d o r s w a p p e d fr o m fl o a ti n g t o fi x e d … ( i n t e r v e n ti o n ) .
A D V PA U L J O S E P H P R E TO R I U S S C : E ff e c t iv e ly s w a p p e d ?
D R J O N AT H A N Z O R A H B L O O M :

E ff e c t i v e l y s w a p p e d c o r r e c t C h a ir.

A s i n d ic a t e d p r e v io u s ly M r R a m o s e b u d i a r g u e d a v o la t il e e c o n o m ic
e n v ir o n m e n t w i t h h i g h i n fl a ti o n a n d v o l a t il e e x c h a n g e r a t e s a s t h e b a s is
f o r f ix in g i n te r e s t r a t e s .

To t h e e x t e n t t h a t t h is w a s t r u e h e s h o u l d

h a v e k n o w n t h i s p r i o r to t h e 2 3 r d o f N o v e m b e r 2 0 1 5 a n d c e r t a in ly w o u ld
10

h a v e k n o w n th is h a d h e li s t e n e d to h is t r e a s u r y t e a m b e c a u s e t h e
tr e a s u r y – t h e d e c i s i o n s a r e b a s e d o n s ig n if ic a n t r e s e a r c h th a t t h e
tr e a s u r y t e a m d o e s b e f o r e t h e y e n t e r i n t o a n y a g r e e m e n t a n d th e r e fo r e
t h e y w o u l d h a v e a s s e s s e d v a r io u s r a t e s , th e y w o u l d h a v e a s s e s s e d
v a r io u s c ir c u m s t a n c e s a n d m a d e t h a t c a l l.

I n te r ms o f th e f o l lo w in g

p o i n t , th is a r g u m e n t o f s u b s ta n ti a lly h i g h e r i n c r e a s e in i n te r e s t r a te s , a
v o l a ti l e r a n d , h i g h in f la t io n w h ic h w o u l d n e c e s s i ta t e f r o m a n e c o n o mi c
p o i n t o f v i e w a n i n c r e a s e i n i n t e r e s t r a te s to k e e p i t i n c h e c k , w o u ld
h a v e o n ly b e e n a b l e to h o ld w a te r i f s o m e , w h a t ’s c a ll e d in t h e fi n a n c i a l
w o r l d , a B l a c k S w a n e v e n t , c o u l d tr ig g e r e x c h a n g e r a t e v o l a t il i ty o r
20

h i g h in f la t io n w h i c h w o u l d i n v a r i a b l y d r i v e in t e r e s t r a t e s h ig h e r.

Fiv e

d a y s a ft e r t h e e x e c u t io n o f th e fi r s t s w a p s w it h N e d b a n k th e F in a n c e
M i n is t e r a t t h e ti m e M r N h a l a n h l a N e n e w a s s a c k e d a n d t h is c o u ld h a v e
b e e n c o n s i d e r e d a s a B l a c k S w a n e v e n t a n d c a u s e d s i g n i fi c a n t
v o l a ti li t y in th e r a n d a n d c a u s e d lo n g - te r m a n d s h o r t- t e r m i n t e r e s t r a t e s
to spike.

S o – b u t w h a t is in t e r e s ti n g is t h e r a t e s n e v e r s t a y e d h i g h ,

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t h e y r a r e l y d o . I n o t h e r w o r d s , y o u m ig h t h a v e a s p ik e b u t t h e n t h e r e ’s
a d e c r e a s e to a n o th e r p o s i ti o n w h e r e i t f i n d s it s e l f . S o – h o w e v e r t h e
r a te s s t a b il is e q u ic k ly a t s li g h t ly h i g h e r l e v e l s a f t e r t h e a p p o i n t m e n t o f
P r a v i n G o r d h a n a n d m o v e d i n a v e r y n a r r o w b a n d a f te r t h a t . T h e r a t e s
n e v e r r e a c h e d le v e ls t h a t w e r e c lo s e t o t h e f ix e d r a te s c o n c l u d e d fo r
t h e s w a p p e d tr a n s a c ti o n s a n d t h is i s t h e u l ti m a t e . S o C h a ir, my v i e w i s
t h a t – a s w a s in d i c a t e d p r e v i o u s l y, a l th o u g h t h e s i tu a ti o n o r e v e n t w a s
tr i g g e r e d it n e v e r h a d th e e ffe c t t h a t w a s a n t ic ip a t e d , in o th e r w o r d s
t h a t i n te r e s t r a te s w o u ld in c r e a s e .
10

E v e n i f in t e r e s t r a t e s i n c r e a s e d

t h e y w o u ld s ti ll s t a b il is e t h e r e a f te r. I n t e r e s t r a t e s n e v e r r e m a i n a t t h e
le v e ls t h a t w e r e e x e c u te d o r w e r e u s e d i n t h is t r a n s a c t io n f o r 1 5 y e a r s .
I t m ig h t h a v e b e e n th e r e fo r a c o u p l e o f w e e k s , w h a te v e r t h e c a s e m a y
b e b u t i t w o u l d h a v e th e n s t a b il is e d , g iv e n in t e r v e n t i o n a t t h a t p o i n t .
A D V PA U L J O S E P H P R E TO R I U S S C :

A lr ig h t a n d th e n o n p a g e 4 0 a n d

4 1 y o u d e a l w it h th e e x p e r ti s e w i t h i n Tr a n s n e t d e a li n g r o o m , i t ’s
e x p e r t is e , i t’s c a p a b il i ty, i t ’s i n te r n a ti o n a l r e p u t a ti o n , t h e r e g a r d i t w a s
h e l d in b y M c K i n s e y f o r e x a m p l e a n d y o u d e a l w i t h w h a t th e c a p a b il i ty
w a s p a r t ic u l a r ly in r e la t io n t o th e s w a p s t h a t w e ’r e d e a li n g w i th h e r e ,
y o u ’v e g i v e n th a t e v i d e n c e t o t h e C h a ir.
20

D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E T O R I U S S C : U n le s s t h e r e ’s a n y q u e s t i o n w e
could move on then to page 43. Would you go to page 43 please, here
w e d e a l i n m o r e d e ta il w i t h t h e c o s t o f th e s e t r a n s a c t io n s , c o s t o f t h e
c h a n g e o f m i n d , c o s t o f t h e e n tr y in t o t h e s w a p e n t a i li n g a fi x e d
in t e r e s t r a te r i s k m i ti g a ti o n m e a s u r e a n d y o u d o s o b y r e fe r e n c e t o a

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s c h e d u l e . P l e a s e t a k e t h e C h a ir th r o u g h p a g e 4 3 a n d e x p la i n w h a t y o u
h a v e p o r tr a y e d h e r e in t h i s s c h e d u l e u n d e r th e s e c o n d b u l le t .
D R J O N ATH A N Z O R A H B L O O M :

C h a i r th e – b e c a u s e t h is is a

s y n d i c a t e d lo a n v a r io u s p a r t ie s t o th e l o a n w o u l d h a v e d i ff e r e n t f lo a ti n g
r a te s d e p e n d s o n n e g o t ia t io n .

S o v a r i o u s f i n a n c ia l in s ti t u t i o n s w o u l d

a g r e e a c e r t a in r a t e f o r th e ir l o a n … ( i n t e r v e n ti o n ) .
A D V PA U L J O S E P H P R E TO R I U S S C : Th is i s t h e f l o a t in g l o a n p a r t?
D R J O N AT H A N Z O R A H B L O O M : T h a t’s th e fl o a t i n g l o a n p a r t, s o i n t h e
c o n te x t o f th e 4 .5 b i ll i o n lo a n th a t w a s a p o r t i o n o f th e 1 2 b i ll i o n lo a n
10

t h a t w a s e x e c u t e d a s a s w a p o n t h e 4 t h o f D e c e m b e r w e c a n lo o k a t t h e
r a te s w h ic h a r e t h e m o r e i m p o r ta n t a s p e c t o f th is t a b l e . Yo u w o u l d s e e
t h a t th e fl o a t i n g r a te f o r th e d i ff e r e n t p a r t ie s a t t h a t p o i n t i n t i m e w a s
9 .1 8 f o r A b s a a n d t h e n 9 .2 2 p e r c e n t f o r B a n k o f C h i n a , N e d b a n k ,
F u tu r e G r o w t h a n d O l d M u t u a l F i n a n c e . S o t h a t’s a n i m p o r t a n t – th e y
c o n c l u d e d th e lo a n o n t h e 2 3 r d o f N o v e m b e r a t t h o s e r a te s . T h e n , w h y
it ’s i m p o r t a n t t o h e n b r i n g i n t h e n e x t c o lu m n ju s t a l o n g s id e t h a t , w h a t ’s
c a l l e d t h e , m i d m a r k e t b le n d e d r a te is t o u n d e r s t a n d w h a t th e m a r k e t
w a s i n d ic a ti n g a t th a t p o in t in ti m e s h o u l d t h e lo a n h a v e b e e n f ix e d .
A D V PA U L J O S E P H P R E TO R I U S S C : O n t h e 2 3 r d o f N o v e m b e r 2 0 1 5 ?

20

D R J O N AT H A N Z O R A H B L O O M :

Ye s t h i s w a s – C h a ir th e m i d m a r k e t

r a te t h a t w e ’r e r e fe r r i n g to h e r e w a s n o t f o r t h e 2 3 r d o f N o v e m b e r i t w a s
f o r t h e – a p p lic a b l e to t h e in t e r e s t r a te s w a p , s o th is w a s o n th e 4 t h o f
D e c e m b e r.
A D V PA U L J O S E P H P R E TO R I U S S C :

Ye s b u t w o u ld t h e r e h a v e b e e n

a s i g n i fi c a n t d i ff e r e n c e ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : I t w o u l d n ’ t h a v e b e e n s i g n i fic a n t b u t
t h e r e w o u ld h a v e b e e n a c o u p l e o f b a s e s p o i n ts d i ff e r e n c e , p o t e n t i a l ly.
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y.
D R J O N AT H A N Z O R A H B L O O M :

S o i f o n e – if Tr a n s n e t w e r e n ’ t

in t e r e s te d in e n te r i n g i n t o a fix e d r a te s w a p a t t h a t p o i n t i n t i m e , t h e y
w o u ld h a v e s a id , o k a y t o th e tr e a s u r y, l e t’s h a v e – w h a t a r e t h e
m i d m a r k e t r a t e s , i n o th e r w o r d s , w h a t a r e t h e r a t e s in th e m a r k e t t h a t
w e s h o u l d b e a b l e t o fix a t a n d C h a ir o n t h e 4 t h o f D e c e m b e r i t w o u l d
h a v e b e e n 11 .1 6 a n d t h i s is e x tr a c te d f r o m m a r k e t i n fo r m a ti o n t h a t ’s
10

p r o v i d e d b y s o u r c e s , if I m a y, B l o o m b e r g a n d R e u te r s a n d t h e s e – t h a t
p r o v i d e th e s e ty p e s o f – t h i s t y p e o f i n fo r m a t io n . S o th e 11 . 1 6 w o u ld
h a v e b e e n t h e b a s is a d d e d t o t h a t , a s I ’v e i n d ic a te d p r e v i o u s l y w o u l d
h a v e b e e n a c o u p l e o f b a s is p o i n ts o r a c o u p le o f e x tr a p e r c e n t –
p o i n t s o f a p e r c e n t to m a k e p r o v i s i o n f o r s o m e o t h e r r is k s , m a r k e t
e x e c u ti o n f e e s , e tc e te r a , e t c e t e r a b u t w h a t is i m p o r ta n t t o n o t e is , w h a t
w a s t h e a c tu a l f ix e d r a t e t h a t w a s p a id b y Tr a n s n e t .
A D V PA U L J O S E P H P R E TO R I U S S C : I n t h e s w a p ?
D R J O N AT H A N Z O R A H B L O O M : I n t h e S w a p , th a t ’s c o r r e c t C h a ir, s o
it ’s 11 .8 3 w h i c h r e m a i n s c o n s is t – w h ic h r e m a i n s f ix e d fo r 1 5 y e a r s , a t

20

t h a t p o i n t i n t i m e v e r s u s 11 . 1 6 w h ic h w o u l d h a v e b e e n a l i tt l e h i g h e r
t h a n t h a t g iv e n t h e – a s I i n d i c a t e d g iv e n s o m e o f t h e o t h e r r i s k f a c t o r s
t h a t o n e w o u l d w o r k i n t o t h a t b u t i t w o u l d n o t c o m e c l o s e t o t h a t fi x e d
r a te t h a t w a s a c tu a lly c h a r g e d .
A D V PA U L J O S E P H P R E TO R I U S S C : S o w e n e e d t o a s k y o u r o p i n io n
a t th is s t a g e , t h e m id m a r k e t b l e n d e d r a t e is t h e f ix e d r a t e b a s is u p o n

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w h ic h a f ix e d r a t e l o a n w o u l d h a v e b e e n e n te r e d i n to in t h e f ir s t p l a c e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s w h a t t h e m a r k e t r a te w a s a t
t h a t p o i n t , s o y o u w o u ld u s e t h a t a s t h e b a s is f o r y o u r – t o s ta r t o ff
your understanding.
A D V PA U L J O S E P H P R E T O R I U S S C : A n d y o u w o u l d a d d o n li t t le b i ts ,
b u t t h e y w o u l d b e l i tt l e b i ts .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

R i g h t n o t s i g n i fic a n t f o r t h e

p u r p o s e s o f t h e q u e s ti o n t o fo ll o w I u n d e r s t a n d .
10

D R J O N AT H A N Z O R A H B L O O M : N o .
A D V PA U L J O S E P H P R E TO R I U S S C :

B u t w h e n i t e n t e r e d i n to t h e

s w a p i t p a i d a m u c h h i g h e r o r t h e e q u iv a l e n t o f a m u c h h ig h e r fi x e d
r a te .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

R i g h t , n o w to t h e o r d i n a r y

p e r s o n t h e d i ff e r e n c e b e t w e e n 11 . 1 6 a n d 11 . 8 3 d o e s n ’ t s e e m h u g e ,
w o u ld y o u c o m m e n t o n t h a t .
D R J O N ATH A N Z O R A H B L O O M :

C h a ir fr o m th e p e r s p e c t iv e o f t h e

a m o u n t o f m o n e y w e ’r e t a l k i n g a b o u t , i n o t h e r w o r d s , 4 . 5 b il li o n r a n d i t
20

is t h e d i ffe r e n c e o f 6 7 b a s is p o i n ts o r 0 . 6 7 p e r c e n t i n t h i s p a r t ic u l a r
c a s e i s s i g n i fi c a n t .
A D V PA U L J O S E P H P R E TO R I U S S C :

A lr i g h t a n d th a t ’s – t h e

d i ff e r e n c e b e t w e e n t h e m i d m a r k e t b l e n d e d r a t e a n d t h e f ix e d r a t e
u l ti m a t e ly p a id a s p a r t o f th e s w a p , y o u ’v e r e fe r r e d t o a s t h e D e l t a .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.

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A D V PA U L J O S E P H P R E TO R I U S S C :

I s t h i s D e lt a t h a t y o u s e e h e r e

in y o u r s c h e d u l e 11 .1 6 t o 11 .8 3 , i s i t n o r m a l , y o u u s e d a w o r d i n
c o n s u l t a ti o n e a r l i e r t h a t w a s m o r e d e s c r ip t iv e .
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a ir I d id , I t h i n k t h e i m p o r t a n t
t h i n g is , th is i s n o t n o r m a l b e c a u s e th e r a t e t h a t w o u l d h a v e b e e n – t h e
r a te t h a t o n e w o u l d h a v e f ix e d a t is – r e m e m b e r i t w o u l d h a v e b e e n th e
m a r k e t r a t e p l u s t h e e x e c u ti o n fe e s t h a t t h e c o u n te r p a r ty w o u l d h a v e
c h a r g e d p l u s a – w h a t ’s c a l le d a C VA , a c r e d i t v a l u e a d ju s t m e n t , l e t ’s
n o t g o t h e r e b u t i t ’s l i tt l e e x t r a r is k f a c t o r s t h a t a r e b u il t i n to t h e r a t e
10

a n d t h a t w o l d h a v e b e e n t h e r a te a t w h ic h t h e y fi x e d . S o th is r a t e o f
11 . 8 3

was

s u b s t a n t ia ll y

higher

than

what

would

have

a c t u a l ly

happened.
A D V PA U L J O S E P H P R E TO R I U S S C : A b n o r m a l ly h i g h e r w o u l d t h a t f i t
y o u r d e s c r i p ti o n ?
D R J O N AT H A N Z O R A H B L O O M : I t ’s a b n o r ma ll y h ig h C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr ig h t w e ’r e g o i n g to d e a l w i th
t h e s e c o n d tr a n c h e b u t p e r h a p s w e s h o u l d d o t h a t a f t e r th e l o n g
a d j o u r n m e n t o n p a g e 4 4 a n d th e p r o s p e c ts o f fi n i s h i n g b y 4 o ’c l o c k a r e
in c r e a s i n g .
20

C H A I R P E R S O N : W e ’ ll t a k e t h e l u n c h a d j o u r n m e n t a n d r e s u m e a t t w o ,
w e ’r e a d jo u r n e d .
INQUIRY AJOURNS
INQUIRY RESUMES
CHAIRPERSON: We may proceed.
A D V PA U L J O S E P H P R E T O R I U S S C : T h a n k y o u C h a ir. D o c t o r B l o o m

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o n p a g e 4 4 y o u d e a l w i t h t h e s c h e d u le i n r e l a ti o n t o th e s e c o n d tr a n c h e
o f t h e c l u b l o a n o f R 1 2 b i ll i o n .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : P l e a s e p l a c e t h a t in f o r m a t io n o n
r e c o r d p le a s e ?
D R J O N AT H A N Z O R A H B L O O M :

Th e s e c o n d t r a n c h e C h a ir w a s –

in v o lv e d a n a m o u n t o f R 7 . 5 b il li o n a n d th e e x e c u ti o n o f t h e s w o p s t o o k
p l a c e o n t h e 7 M a r c h i n t h e s a m e m a n n e r a s p r e s e n t e d f o r t h e fir s t
tr a n c h e 4 . 5 b il li o n t h e s a m e i s d o n e o v e r – i s d o n e f o r th e 7 . 5 b i lli o n .
10

S o i f y o u – i f y o u l o o k a t t h e fl o a ti n g r a te tr a n s a c ti o n s a r e v e r y s i m il a r.
I t w o u l d h a v e – t h e r a t e s w o u l d b e d i ff e r e n t b u t i n t e r m s o f – i n te r ms
o f t h e fl o a ti n g r a t e if y o u a d d t h e m u p i t c o m e s to 9 .6 2 a n d 9 . 7 1 s o
t h o s e w e r e t h e fl o a ti n g r a t e s b u t I t h i n k w h a t i s m o r e i m p o r ta n t C h a i r is
t h e – is th e m i d - m a r k e t b le n d e d r a t e .

S o th a t w o u ld h a v e b e e n th e

m a r k e t r a te t h a t w e a s t h e s a m e i n t h e p r e v i o u s e x a m p l e b u t w o u l d
h a v e b e e n 11 .4 4 % a n d t h e a c tu a l r a t e c o n c lu d e d o r a g r e e d i n te r ms o f
t h e s w o p a g r e e m e n t w a s 1 2 .2 7 % w i t h – b e t w e e n Tr a n s n e t a n d
Nedbank.
A D V PA U L J O S E P H P R E TO R I U S S C :
20

A n d a g a i n a s i m il a r a m o u n t a s

what you have described as the Delta.
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d d o t h e s a m e c o m m e n ts

a p p ly i n r e l a ti o n t o w h e th e r t h a t is a b n o r m a l ly h i g h , lo w ?
D R J O N AT H A N Z O R A H B L O O M : I t i s i n e x a c tl y th e s a m e r e a l m o f t h e
fir s t tr a n c h e w h ic h i s e x c e s s iv e i f y o u th i n k 11 . 4 4 v e r s u s 1 2 .2 7 t h a t is

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q u i te a j u m p o r i n th e fix e d r a t e a n d s o i n m y o p in io n i t is – i t is h i g h .
A D V PA U L J O S E P H P R E TO R I U S S C : A n d s o w h a t d o y o u c o n c l u d e i n
the second last bullet on page 44?
D R J O N ATH A N Z O R A H B L O O M :

S o C h a ir Tr a n s n e t o v e r p a i d f o r th e

s w o p tr a n s a c ti o n s i n s o f a r a s t h e y i n c u r r e d s u b s t a n t ia l l o s s e s a s a
c o n s e q u e n c e . A n d th e y a l s o p a id e x c e s s i v e f e e s a s – th a t is i n c l u d e d
in t h o s e r a t e s a n d th a t i s e s s e n t ia ll y v e r y s i m il a r to t h e s a m e – t o th e
s a m e s i t u a t i o n o c c u r r e d f o r t h e 4 . 5 b i ll io n . B u t C h a ir I w o u ld j u s t li k e t o
in d i c a t e a n i n te r e s t i n g o u tc o m e o f b o t h tr a n c h e s a n d th a t is i f y o u – i f
10

y o u s u b tr a c t i n t h e 4 . 5 b ill i o n t h e fi x e d r a te f r o m t h e f l o a t in g r a t e n o t
t h e m i d - m a r k e t j u s t t h e fix e d to t h e fl o a ti n g i n t h e 4 . 5 b i lli o n a n d t h e
fi x e d t o t h e f lo a ti n g in t h e 7 .5 b il li o n t h e d i ff e r e n c e b e t w e e n t h o s e t w o
r a te s i t i s e x a c t ly t h e s a m e . S o i n o t h e r w o r d s i t w a s 2 . 6 5 % w h ic h is –
it d o e s n o t w o r k lik e t h a t i n p r a c t ic e . I n o t h e r w o r d s w h e r e t h e f l o a t in g
r a te a n d th e f ix e d r a t e p a y a b le i t is a s i f i t w a s a l ig n e d t o b e th e s a m e
spread between
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

T h e fl o a ti n g a n d t h e f ix e d f o r b o t h

tr a n c h e s .
20

CHAIRPERSON: Oh.
A D V PA U L J O S E P H P R E TO R I U S S C :

W h a t c o n c l u s io n d o y o u d r a w

fr o m t h a t ?
D R J O N ATH A N Z O R A H B L O O M :

W e l l t h a t a p p e a r s to i n d i c a t e t h a t –

t h a t t h e f ix e d r a t e o f b o t h l o a n s o r b o t h s w o p s w a s i n t e n d e d t o h a v e a
s p r e a d , a v e r y h i g h s p r e a d o f 2 . 6 5 % b e tw e e n th e fl o a ti n g a n d t h e f ix e d

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r a te . In o t h e r w o r d s th a t is – th a t i s e x c e s s iv e .
A D V PA U L J O S E P H P R E TO R I U S S C : A n d w h o w o u ld b e n e fi t fr o m t h a t
spread?
D R J O N AT H A N Z O R A H B L O O M : W e l l …
A D V PA U L J O S E P H P R E TO R I U S S C : E x c e s s iv e a s y o u d e s c r ib e i t ?
D R J O N AT H A N Z O R A H B L O O M : T h e c o u n t e r p a r ty w o u l d b e n e fi t a n d
t h e n e s s e n ti a l ly a n d t h e n R e g i m e n ts o b v io u s ly b e c a u s e th e i r fe e is
in c l u d e d i n t h e 2 . 2 7 .
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t .
10

C H A I R P E R S O N : W o u l d R e g i m e n t s b e t h e o n ly p a r ty t h a t w o u l d s t a n d
t o b e n e fi t fr o m t h a t ?
D R J O N ATH A N Z O R A H B L O O M :

C h a ir t h e y w e r e a p o i n t f o r t h e s e

tr a n s a c ti o n s t h e y w e r e a p p o i n t e d a s t h e e x e c u ti n g a g e n t .
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

S o th e y w o u ld f u l f il t h a t r o le a s

tr a d i n g t h e s w o p s s o y e s t h e y w o u l d t h e p a r ty a n d N e d b a n k a s t h e
c o u n t e r p a r t y w o u l d b e n e f i t f r o m t h e d i ffe r e n c e in t h e i n t e r e s t r a te s .
CHAIRPERSON:

Ye s .

S o w o u l d – w o u l d y o u r c o n c lu s i o n b e t h a t

p r o b a b ly t h is w a s d o n e t o b e n e f i t R e g i m e n ts a n d i f in th e p r o c e s s
20

Nedbank

b e n e fi t e d

that

might

have

been

ju s t

an

unintended

consequence.
D R J O N AT H A N Z O R A H B L O O M : W e l l C h a ir c o mi n g to t h e f e e s .
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M :

I t w a s – y e s b e c a u s e in o r d e r

R e g i m e n t s w e r e p a id 2 0 b a s is p o in ts .

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05 JUNE 2019 – DAY 106
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : O n e a c h o n e o f t h e s w o p s .
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

S o b y s p l i t ti n g i t – b y s p l i tt i n g t h e

lo a n i n t o t w o tr a n c h e s e tc e t e r a , e t c e t e r a w a s – w o u l d h a v e b e n e f i tt e d
t h e m a ls o i n t e r m s a n d N e d b a n k w o u l d h a v e h a d a v e r y h i g h – w o u l d
h a v e h a d a b e n e f it fr o m t h e f a c t t h a t t h e f i x e d r a t e p a y a b l e b y Tr a n s n e t
was so high.

A n d w e h a v e s e e n t h a t is w h y t h e l o s s e s i n c u r r e d b y

Tr a n s n e t t o d a t e h a v e a c c r u e d a s a c o n s e q u e n c e .
10

C H A I R P E R S O N : Is i t – w h a t a r e t h e c h a n c e s t h a t th is m ig h t h a v e b e e n
s i m p l y a r e s u l t o f t h e n e g o ti a ti o n s b e t w e e n N e d b a n k a n d Tr a n s n e t
w i t h o u t a n y b o d y a i m i n g t o b e n e fi t R e g i m e n ts a s s u c h a n d t h a t
R e g i m e n t s ju s t h a p p e n e d to b e n e f i t i n t h e p r o c e s s ?

What are the

c h a n c e s o f th a t s c e n a r i o h a v i n g b e e n th e s c e n a r i o ?
D R J O N AT H A N Z O R A H B L O O M : I d o n o t t h i n k R e g i m e n ts w o u l d h a v e
ju s t b e n e fi t t e d . I t h in k t h i s w a s p l a n n e d .
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

In respect of the fact that entering

in t o t h e s w o p s w o u l d r e s u l t i n s i g n i fi c a n t f e e s f o r t h e m .
20

CHAIRPERSON: For them ja.
D R J O N AT H A N Z O R A H B L O O M : F r o m t h e o th e r p e r s p e c ti v e a n d fr o m
w h a t I h a v e s e e n N e d b a n k i n d ic a t e t h a t t h e – t h e f ix e d r a t e p a i d o r th e
2 .2 – th e 1 2 .2 7 i n t h is p a r t ic u l a r c a s e w a s p r o v i d e d t o t h e m b y
Tr a n s n e t a n d Tr a n s n e t a d v i s o r s a s t h e y s a y.
C H A I R P E R S O N : Ye s .

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D R J O N AT H A N Z O R A H B L O O M :

S o i t w a s a q u e s ti o n o f N e d b a n k

w o u ld h a v e n o t e n t e r e d i n t o s o m e t h i n g li k e t h i s i f it w a s n o t b e n e fi c i a l
to them.
CHAIRPERSON: Hm.
D R J O N ATH A N Z O R A H B L O O M : O r i t d i d n o t m a k e b u s in e s s s e n s e f o r
them to enter into such an arrangement.
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

S o o b v io u s ly a t t h a t p o in t i n ti m e

t h e y s a w t h e r a te a s b e i n g a n – b e n e fic i a l .
10

C H A I R P E R S O N : B e n e fic i a l to t h e m j a .
D R J O N AT H A N Z O R A H B L O O M :

A n d it i s – a n d t h a t is w h a t th e y

concluded at.
CHAIRPERSON:

Ye s .

A n d t o th e e x t e n t t h a t t h e tw o fi g u r e s o r

p e r c e n t a g e s t h a t y o u t a lk e d a b o u t a s h a v i n g p r o b a b ly – h a v i n g
p r o b a b ly b e e n a l ig n e d t o t h e e x te n t t h a t t h e y w e r e a l ig n e d a r e y o u a b l e
t o s a y t h e y c o u l d n o t h a v e b e e n a n y b o n a f id e i n n o c u o u s m o ti v e o r
tr y i n g t o a li g n t h e m ?
D R J O N AT H A N Z O R A H B L O O M :

N o t C h a ir – n o t w h e n i t c o m e s t o

in t e r e s t r a t e s o r w h e n i t c o m e s t o m a r k in g r a te s t o th e m a r k e t .
20

C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

W h ic h is w h a t is r e q u ir e d in a n

e x e r c is e li k e t h i s .
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : S o i t d o e s s e e m – i t d o e s s e e m o u t o f
p l a c e o r a l i t tl e o d d .

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05 JUNE 2019 – DAY 106
CHAIRPERSON:

Ye s .

I t is n o t s o m e t h i n g y o u h a v e s e e n in y o u r

experience over the years?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir.
C H A I R P E R S O N : Ye s o k a y. T h a n k y o u .
A D V PA U L J O S E P H P R E T O R I U S S C :

A lr ig h t .

S o y o u m a k e th e

c o n c l u s i o n t h e n o n p a g e 4 4 t h a t a t th e v e r y l e a s t w h a t t h e a b o v e
s c h e d u l e s h o w s is th a t Tr a n s n e t s i g n i fi c a n tl y o v e r p a i d f o r s w o p
tr a n s a c ti o n , is th a t s ti ll y o u r o p in i o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
10

A D V PA U L J O S E P H P R E TO R I U S S C : A lr ig h t l e t u s g o t o p a g e 4 5 . A
n e w c h a l le n g e t o e x p l a i n t h is g r a p h t o u s .
D R J O N AT H A N Z O R A H B L O O M :

O k a y C h a ir th e – i f – th is a g r a p h

t h a t t a k e s a c o u p l e o f t h i n g s in t o a c c o u n t . Th e f ir s t o n e is t h is is – t h is
r e l a t e s – t h e – h a s to d o – fir s t o f a ll . Th is r e l a t e s t o t h e c o s t o f d e b t
in o t h e r w o r d s th e i n te r e s t p a id b y Tr a n s n e t. B u t – a n d it r e l a t e s t o t h e
t w o tr a n s a c t i o n s t h a t w e h a v e b e e n t a lk i n g a b o u t th e 4 . 5 b il li o n a n d th e
7 .5 b i ll io n a n d th e r a te s – t h e fi x e d r a te s …
A D V PA U L J O S E P H P R E TO R I U S S C :

W h i c h m a d e u p th e C h i n a

D e v e l o p m e n t – s o r r y m a d e u p t h e 1 2 b i ll io n ?
20

D R J O N AT H A N Z O R A H B L O O M : T h e 1 2 b ill i o n c l u b lo a n .
A D V PA U L J O S E P H P R E TO R I U S S C : C lu b l o a n ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t .
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : A n d th a t – th e id e a b e h i n d th is i s to –
t o i n d i c a t e h o w d o e s t h a t r e l a te to th e o v e r a l l c o s t o f d e b t w i t h i n

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Tr a n s n e t? A s a – a s a b e n c h m a r k i n g e x e r c is e i f I c a n …
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y n o l e t u s t a k e a s t e p b a c k .
D R J O N AT H A N Z O R A H B L O O M : O k a y.
A D V PA U L J O S E P H P R E TO R I U S S C :

W h a t y o u h a v e d o n e in t h is

g r a p h is y o u h a v e a t te m p t e d to s h o w t h e c o s t o f d e b t i n in t e r e s t r a t e
t e r m s t o Tr a n s n e t o n a v e r a g e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y a n d t h e r e a r e t w o w a y s i n
w h ic h y o u p o r tr a y e d t h a t a n d t h e b lu e l in e a n d t h e r e d li n e a n d w e w il l
10

e x p l a i n th a t i n a m o m e n t .

A n d t h e n in c o m p a r is o n t o t h a t y o u h a v e

a tt e m p t e d t o s h o w w h a t th e c o s t o f d e b t w a s i n r e l a ti o n t o t h e c l u b
lo a n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d y o u r c o m p a r i s o n il lu s t r a t e s
t h e b a s i s o f y o u r c o n c lu s i o n w h i c h y o u w i ll m a k e a t th e e n d o f t h is
p r e s e n t a ti o n ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t w h a t i s t h e b lu e l i n e ?
D R J O N AT H A N Z O R A H B L O O M :
20

T h e b l u e li n e w i t h t h e d o ts th a t

r e p r e s e n ts t h e w e i g h t e d a v e r a g e c o s t o f d e b t a t Tr a n s n e t . E a c h m o n th
f o r t h e p e r i o d 1 S e p te m b e r 2 0 1 5 o n th e l o w e r a x is u p u n t il t h e 1 M a r c h
2018.
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y s o t h e b l u e l in e a n d a ll i ts
d o t s s h o w w h a t i n t e r e s t r a t e w a s b e in g p a id b y Tr a n s n e t o n a v e r a g e i n
r e s p e c t o f a l l i ts d e b t a t a p a r ti c u l a r d a t e ?

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D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : W h a t is w e i g h t e d a v e r a g e ?
D R J O N AT H A N Z O R A H B L O O M : W e i g h t e d a v e r a g e t h a t is w h e r e W A C
D c o m e s i n . I t is – b e c a u s e Tr a n s n e t h a v e d i ff e r e n t t y p e s o f d e b t a n d
t h e m a g n i t u d e o f t h e d e b t d i ffe r.

In o t h e r w o r d s t h e y h a v e d i ff e r e n t

s iz e s li k e i n – i f I c a n i n d ic a te i t lik e t h a t . T h e y – i n o r d e r t o g e t a n
o v e r a l l i n d i c a t io n o f w h a t t h e c o s t o f d e b t is y o u c a n n o t j u s t a d d u p a ll
t h e in t e r e s t r a te s a p p l ic a b l e t o e a c h o f t h e l o a n s o r t h e e tc e te r a y o u
h a v e t o – y o u h a v e to w e ig h t e a c h o n e o f t h o s e r a t e s i n t e r m s o f t h e
10

s iz e o f t h e lo a n a n d t h a t c r e a t e s t h e a v e r a g e .

S o t h a t is w h y i t i s

c a l l e d a w e i g h te d a v e r a g e c o s t o f d e b t a n d i t r e f e r s to a ll Tr a n s n e t
debt.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t .
C H A I R P E R S O N : Yo u s p e c i fi e d fr o m w h a t p e r i o d t o w h a t p e r i o d e a r li e r
o n . D o y o u w a n t t o j u s t r e p e a t th a t i n r e g a r d to t h a t b l u e li n e ?
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.
CHAIRPERSON:

I t r e p r e s e n t s th e w e i g h t e d a v e r a g e c o s t o f d e b t a t

Tr a n s n e t f r o m a c e r t a i n d a t e t o a c e r ta in d a te ?
D R J O N ATH A N Z O R A H B L O O M :
20

T h a t i s c o r r e c t C h a ir.

Fr o m th e 1

S e p te m b e r 2 0 1 5 u n t il th e 1 M a r c h 2 0 1 8 . N o w …
A D V PA U L J O S E P H P R E TO R I U S S C : T h a t i s th e h o r iz o n ta l a x i s o f t h e
graph?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
CHAIRPERSON: Okay thank you.
D R J O N AT H A N Z O R A H B L O O M : S o i f y o u ta k e t h e n t h e r e d li n e …

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A D V PA U L J O S E P H P R E TO R I U S S C : W e l l le t u s j u s t
D R J O N AT H A N Z O R A H B L O O M : O k a y.
A D V PA U L J O S E P H P R E TO R I U S S C :

M a k e a g e n e r a l o b s e r v a t io n

a b o u t t h e b lu e li n e . O v e r t h a t t h r e e y e a r p e r i o d 1 S e p te m b e r 2 0 1 5 to 1
M a r c h 2 0 1 8 t h e c o s t o f d e b t o n a w e i g h t e d a v e r a g e b a s is i n c r e a s e d
fr o m a p p r o x i m a t e ly 9 .4 % t o 1 0 .7 % , i s t h a t c o r r e c t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A g r a d u a l in c r e a s e o v e r t h a t

p e r i o d o f ti m e ?
10

D R J O N AT H A N Z O R A H B L O O M :

I t – t h a t i s – C h a ir t h a t is a

s ig n if ic a n t i n c r e a s e .
A D V PA U L J O S E P H P R E TO R I U S S C : I s i t a s i g n i fi c a n t i n c r e a s e ?
D R J O N AT H A N Z O R A H B L O O M : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d i t is w h a t Tr a n s n e t w a s

p a y i n g o n a v e r a g e f o r it s d e b t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t . T h e r e d l in e ?
D R J O N AT H A N Z O R A H B L O O M : T h e r e d li n e r e p r e s e n ts t h e a v e r a g e –
it is a n o r m a l a v e r a g e o f t h e d i ff e r e n t d o t s o n t h e b l u e li n e .
20

I n o th e r

w o r d s i f y o u a d d a l l t h e in t e r e s t r a t e s t h e w e i g h t e d a v e r a g e c o s t o f
d e b t r a t e s o n e a c h o n t h e b l u e li n e to g e t h e r a n d y o u d iv id e i t b y th e
n u m b e r o f p e r io d s t h a t w e a r e t a l k i n g a b o u t y o u g e t t o a n a v e r a g e o f
10.23.
A D V PA U L J O S E P H P R E T O R I U S S C : A lr ig h t .

P u t d i ff e r e n t ly t h e r e d

li n e in d ic a t e s t h e a v e r a g e r a t e o f i n te r e s t p a i d b y Tr a n s n e t f o r it s d e b t

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o v e r th a t w h o l e th r e e y e a r p e r io d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O k a y a n d t h a t a v e r a g e …
C H A I R P E R S O N : Is t h a t d u r i n g t h e s a m e p e r i o d ?
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r.
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s . S o th a t i s o n e a v e r a g e o f
a l l t h e d e b t o v e r t h a t w h o le p e r i o d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
C H A I R P E R S O N : L e t m e j u s t m a k e s u r e I h a v e g o t i t r i g h t . T h e r e d l in e
10

r e p r e s e n ts t h e n o r m a l a v e r a g e c o s t o f d e b t a t Tr a n s n e t f o r t h e p e r io d 1
S e p te m b e r 2 0 1 5 to 1 M a r c h 2 0 1 8 .
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a i r b u t ju s t f o r c la r i fi c a t io n .
CHAIRPERSON: Hm
D R J O N AT H A N Z O R A H B L O O M : I t in c l u d e s – i t is t h e a v e r a g e o f a l l
t h e d o ts o n t h e b l u e li n e . I n o th e r w o r d s i t is t a k in g a l l t h e d o ts j u s t t o
o b t a i n a n a v e r a g e o v e r th a t p e r io d .
A D V PA U L J O S E P H P R E TO R I U S S C : I n f a c t …
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C : T h e y s h o u ld p e r h a p s n o t b e o n

20

t h e s a m e g r a p h b e c a u s e th e y d i ff e r e n t m e a s u r e s .
D R J O N AT H A N Z O R A H B L O O M :

I t is m e r e l y to in d ic a t e tr e n d t h a t is

why it is there.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t s o t h e b lu e li n e t e l ls y o u
a t a n y p a r ti c u l a r d a t e w h a t t h e a v e r a g e c o s t o f d e b t w a s .

S o in

S e p te m b e r 2 0 1 5 i t w a s r e l a t iv e l y l o w 9 . 4 % b u t i n M a r c h 2 0 1 8 i t w a s y o u

Page 105 of 143

05 JUNE 2019 – DAY 106
s a y s i g n i fic a n tly h i g h e r 1 0 . 7 % s a y.
D R J O N ATH A N Z O R A H B L O O M :

Ye s C h a i r b u t I th in k w h a t is

i m p o r t a n t t o u n d e r s t a n d is t h a t t o l o o k a t t h e d o tt e d b l u e li n e fr o m t h e 1
A p r il 2 0 1 6 . I n o t h e r w o r d s ju s t u n d e r th e r e d l i n e a n d to l o o k a t – fr o m
t h a t p o i n t t o t h e e n d o f t h e p e r i o d w h ic h is th e 1 M a r c h 2 0 1 8 .

Th a t

s li g h t ly u p w a r d m o v e m e n t is n o t s i g n i fi c a n t . I t is t h e n o r m a l tr e n d – i t
is t h e n o r m a l tr e n d i n g o f i n t e r e s t r a t e s h i g h e r.
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : In t e r m s o f t h e c y c l e .
10

CHAIRPERSON: Hm.
D R J O N ATH A N Z O R A H B L O O M : S o th a t is n o t a b n o r m a l i f I c a n u s e
t h a t te r m .
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

B u t w h a t is i n te r e s t in g a n d t h is is

c a u s e d b y a n d w e w i ll g e t t o t h e d i ff e r e n c e s n o w b u t w h a t is c a u s e d b y
t h e f a c t t h a t t h e y s w o p p e d s o m u c h d e b t fr o m f l o a t in g t o fi x e d y o u
c o u l d s e e t h e r e th a t fr o m t h e 1 F e b r u a r y t h e r e w a s a – t h e r e w a s a n –
le t u s s t a r t o n th e 1 – fr o m t h e 1 D e c e m b e r th e r e w a s a s li g h t in c r e a s e
a n d th e n – b u t fr o m t h e 1 F e b r u a r y u p t o t h e 1 A p r i l .
20

CHAIRPERSON: Hm.
D R J O N ATH A N Z O R A H B L O O M :

Th e r e w a s q u i te a s i g n i fic a n t

in c r e a s e .
A D V PA U L J O S E P H P R E TO R I U S S C : S p i k e .
D R J O N ATH A N Z O R A H B L O O M :

A spike.

And that was when the

1 2 . 2 7 fix e d r a t e s w o p w a s e n te r e d in t o .

S o w e c h a n g e d th e –

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05 JUNE 2019 – DAY 106
e s s e n ti a l ly

changed

th e

d e b t p r o fi le

o f Tr a n s n e t i n c r e a s in g

th e

weighted average cost of debt up to that point.
A D V PA U L J O S E P H P R E TO R I U S S C :

A lr ig h t s o y o u s a y w h a t is

s ig n if ic a n t h e r e is t h a t t h e b lu e l in e w h ic h r e fl e c ts t h e w e i g h t e d
a v e r a g e o f a l l d e b t s p ik e s a n d t h a t s p i k e is c a u s e d b y t h e f a c t t h a t
e x p e n s iv e i n te r e s t r a t e s w o p s a r e b e i n g e n t e r e d i n t o ?
D R J O N AT H A N Z O R A H B L O O M : Ye s i n o t h e r w o r d s m o r e fix e d d e b t is
b e i n g a d d e d o r f ix e d – j a f ix e d d e b t i s b e i n g a d d e d t o t h e t o ta l d e b t o f
Tr a n s n e t .
10

A D V PA U L J O S E P H P R E TO R I U S S C : A t h ig h i n te r e s t r a t e s .
D R J O N AT H A N Z O R A H B L O O M : A t a h ig h i n t e r e s t r a t e c o r r e c t .
CHAIRPERSON:

A n d t h a t w e s a y i s f r o m a r o u n d 1 Fe b r u a r y 2 0 1 5 t o

a r o u n d 1 A p r il 2 0 1 6 ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : O k a y.
A D V PA U L J O S E P H P R E TO R I U S S C : S o a t a n y p a r ti c u l a r d a te o n th is
g r a p h o n e c a n s e e o n t h e b l u e l in e w h a t t h e w e i g h te d a v e r a g e i s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :
20

Cost of debt in interest rate

terms.
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

Correct. And one can see the

s p i k e a n d y o u h a v e e x p l a i n e d t h e c a u s e o f th e s p i k e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : T h o s e t w o v e r tic a l b o x e s r e la t e s

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05 JUNE 2019 – DAY 106
t h a t s p ik e t o t h e in f o r m a t io n t h a t y o u a r e a b o u t to d e s c r i b e a t th e t o p o f
the graph.
D R J O N AT H A N Z O R A H B L O O M : S o th e g r e e n li n e a n d t h e …
A D V PA U L J O S E P H P R E TO R I U S S C : N o , n o b e fo r e w e g o t o th e g r e e n
li n e w e m u s t e x p la i n t h e r e d l i n e . T h e r e d l in e i s a s i n g le a v e r a g e o v e r
t h e w h o le p e r i o d ?
D R J O N AT H A N Z O R A H B L O O M :

O k a y.

Ye s it is t h e s in g l e a v e r a g e

o v e r th e w h o l e …
A D V PA U L J O S E P H P R E TO R I U S S C : A n d o n e c a n s e e t h a t fr o m t h e
10

ti m e o f th e s p i k e m o r e o r l e s s Tr a n s n e t is p a y i n g a b o v e a v e r a g e r a t e s
f o r i ts d e b t , c o r r e c t ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t t h e g r e e n l i n e is ?
D R J O N AT H A N Z O R A H B L O O M :

Th e g r e e n li n e r e p r e s e n t s th e f ix e d

r a te o f th e f ir s t tr a n c h e o f 4 . 5 b i ll io n a c r o s s t h a t p e r i o d a n d I w il l
e x p l a i n n o w t h e p u r p le l in e r e p r e s e n ts t h e fix e d i n t e r e s t r a t e o f t h e
R 7 . 5 b il li o n o f t h e 1 2 b il li o n o n – i n M a r c h 2 0 1 6 – w e ll th e o t h e r o n e
w a s i n A p r i l – a g in D e c e m b e r 2 0 1 5 .
A D V PA U L J O S E P H P R E T O R I U S S C :
20

T h o s e a r e t h e fix e d i n te r e s t

r a te s c o n s e q u e n t u p o n t h e s w o p ?
D R J O N AT H A N Z O R A H B L O O M :

C o r r e c t C h a ir. S o t h e p a r a ll e l li n e s

o r n o t t h e p a r a l l e l li n e s t h e a r r o w s b e t w e e n t h e a v e r a g e d e b t 1 0 . 2 3 a n d
t h e g r e e n li n e th a t r e p r e s e n ts h o w h ig h e r – h o w m u c h h i g h e r th e a c t u a l
o v e r a l l c o s t o f d e b t w a s t h a t w a s e n t e r e d i n – a l th o u g h t h e – h o w m u c h
h i g h e r t h e i n te r e s t r a te – fi x e d r a t e w a s e n t e r e d i n to i n t h e f ir s t tr a n c h e

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05 JUNE 2019 – DAY 106
o f s w o p s w h e n c o m p a r e d to t h e a v e r a g e .

In o th e r w o r d s 11 .8 3

c o m p a r e d t o 1 0 .2 3 o n a v e r a g e . A n d th a t r e p r e s e n ts 1 . 6 % w h i c h is o n a
ty p e o f d e b t b o o k s u c h a s Tr a n s n e t h a s is a s i g n i fi c a n t i m p a c t . O n th e
d o t t e d a r r o w w h ic h is d r a w n fr o m t h e a v e r a g e 1 0 . 2 3 t o th e 1 2 . 2 7 t h e
s e c o n d tr a n c h e o f t h e 1 2 b i lli o n th a t p e r c e n t a g e is ju s t o v e r 2 % w h ic h
is a ls o c o m p a r e d to t h e h i g h e r r a t e s a t w h i c h t h o s e s w o p s w e r e e n t e r e d
in t o a ls o s e e m s to b e o u t o f p l a c e .
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t .
D R J O N ATH A N Z O R A H B L O O M :
10

A n d C h a ir ju s t b y t h e w a y I t h i n k i t

ju s t a d d s a li t tl e b i t o f c o n t e x t th e l a s t d o t o n th e b l u e li n e o n t h e 1
M a r c h 2 0 1 8 is a c tu a l ly 1 0 .6 4 ju s t fo r i n t e r e s t s a k e . B e c a u s e – s o y o u
c a n s e e t h a t i t is m o v i n g – i t is t r e n d i n g u p b u t it is n o t s h o w in g s i g n s
o f e x p o n e n ti a l g r o w t h i n r a te s .
CHAIRPERSON: Thank you.
A D V PA U L J O S E P H P R E TO R I U S S C :

A lr i g h t .

A n u n s k i ll e d o r n o n -

e x p e r t o b s e r v e r m a y s a y lo o k t h e d i ff e r e n c e b e t w e e n t h e a v e r a g e d e b t
o v e r t h e p e r io d 1 0 . 2 3 % a n d w h a t w a s p a i d in t h e fir s t a n d s e c o n d s w o p
1 .6 % o r 2 . 0 4 % m o r e is o n l y o n e o r t w o p e r c e n t i t is n o t m u c h .

What

w o u ld y o u r r e s p o n s e t o t h a t b e ?
20

D R J O N AT H A N Z O R A H B L O O M : C h a ir a s I in d i c a t e d o n t h e d e b t – o n
t h e s iz e o f t h e d e b t b o o k e s p e c i a l ly o n t h e f ix e d s i d e t h a t Tr a n s n e t
h a v e i t r e p r e s e n t s a s u b s ta n ti a l a m o u n t - i t c a n r e p r e s e n t a s u b s t a n t i a l
d i ff e r e n c e i n fi n a n c i n g c o s t .

I n o t h e r w o r d s i t m e a n s i t is j u s t – i t is

e x tr a – i t is e x t r a fu n d s t h a t Tr a n s n e t h a v e t o f i n d o r – t o s e t t le j u s t t h e
c o s t o f d e b t w h ic h i s t h e n – w h ic h is o u t o f k il t e r w i th t h e m a r k e t.

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A D V PA U L J O S E P H P R E TO R I U S S C : O n p a g e 4 6 y o u r e f e r t o th e fe e s
t h a t a c c r u e d t o o r w e r e p a id to R e g i m e n ts a s f e e s f o r e x e c u ti n g t h e
swops.
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

Yo u s a y t h a t t h e m a n n e r o f

c a l c u l a ti o n o f th e f e e s a n d th e r e s u l t a n t a m o u n t a c c r u e d to o r p a i d to
R e g i m e n t s is t h e s u b j e c t m a t t e r o f f u r th e r i n v e s ti g a ti o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : S o w e w il l d e a l w i t h th a t C h a ir a t
10

a n o t h e r s ta g e .

Yo u a r e n o w g o i n g t o m o v e to a c o m p l e t e ly d i ff e r e n t

tr a n s a c ti o n a n d th a t is t h e tr a n s a c ti o n th a t i n v o lv e d t h e Tr a n s n e t
s e c o n d d e fi n e d b e n e fi t fu n d .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

I t i n v o lv e d Tr a n s n e t a n d i t

in v o lv e d R e g i m e n ts ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A lr i g h t .

W h a t is t h e T S D B F ?

Tr a n s n e t S e c o n d D e f in e d B e n e fi t F u n d ?
D R J O N AT H A N Z O R A H B L O O M : C h a ir i t is o n e o f Tr a n s n e t ’s f u n d s a g
20

p e n s i o n fu n d s b u t i n t e r m s i f y o u l o o k a t i t s n a m e it i s a d e fi n e d b e n e fi t
f u n d i n o t h e r w o r d s it p a y s o u t b e n e fi ts t o b e n e f ic i a r ie s b u t d o e s n o t
receive …
C H A I R P E R S O N : C o n t r i b u t io n s .
D R J O N AT H A N Z O R A H B L O O M : C o n tr i b u ti o n s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d t h o s e b e n e f it s a r e fi x e d ?

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Tr a n s n e t h a s t o p a y t h e m ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : Yo u c a n n o t s a y I a m in f i n a n c i a l
tr o u b le ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : O r it c a n n o t s a y my i n v e s t m e n ts
a r e n o t d o i n g t o o w e ll ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :
10

R ig h t it h a s t o p a y t h o s e

b e n e fi ts in t e r m s o f i ts r u le s ?
D R J O N ATH A N Z O R A H B L O O M : A n d i n t e r m s o f t h e a g r e e m e n ts w i t h
t h e b e n e fi c i a r i e s .
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s o k a y. W e l l l e t u s n o t g o i n t o
t h a t d e ta il .

I t is j u s t t h a t i n r e l a t i o n to t h e p e r f o r m a n c e o f t h e f u n d

Tr a n s n e t i ts e l f i s r i s k ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A l r ig h t .

S o y o u s a y th e r e w a s

a n a m o u n t o f R 11 .3 b i ll io n o f Tr a n s n e t d e b t .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
20

A D V PA U L J O S E P H P R E TO R I U S S C : N o w t h is i s ju s t Tr a n s n e t d e b t i n
g e n e r a l i t i s n o t n e c e s s a r ily a p a r ti c u la r lo a n i t is j u s t p a r t o f
Tr a n s n e t’s d e b t a t a p a r tic u la r t i m e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir a n d i t d o e s n o t
a l ig n a ls o w i t h t h e f in a n c in g th a t w e h a v e b e e n t a lk i n g a b o u t f o r t h e
lo c o – f o r t h e C h i n e s e l o c o m o tiv e s .

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CHAIRPERSON: Hm.
D R J O N ATH A N Z O R A H B L O O M : T h i s is a s e p a r a te tr a n s a c t i o n b u t i t
is d e a l t w i t h i n t e r m s o f in t e r e s t r a te s w o p s .
CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C :

Right. And this debt had been

in c u r r e d b y Tr a n s n e t a s I u n d e r s t a n d y o u r e v i d e n c e a s a f lo a ti n g r a te o f
in t e r e s t?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : J u s t to g o b a c k to t h e t e r mi n o l o g y o f h e d g in g . In t h i s
10

c o n te x t w h e r e it s a y s a t a s ta g e i t w a s d e c i d e d to h e d g e R 11 .3 b il li o n
o f Tr a n s n e t d e b t w h ic h w a s a t f l o a t in g r a t e w h i c h w a s u n d e r t h e
fl o a ti n g r a t e r e g i m e – s w o p w i t h th e c o m p a n y – s o i t g o e s b a c k to t h e
n o r m a l w h e r e – m e a n i n g t h a t w e g a v e i t t o p r o te c t – to p r o t e c t .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : S o i t w a s d e c i d e d t o p r o t e c t th is a m o u n t – t h i s d e b t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : O k a y.
A D V PA U L J O S E P H P R E TO R I U S S C :

Yo u w i ll r e c a l l a n e a r li e r

q u e s t io n fr o m t h e C h a ir w h e r e h e a s k e d w a s it a l w a y s t h e c a s e t h a t a
20

h e d g i n g tr a n s a c ti o n w o u l d b e p r e c e d e d b y a n o t h e r tr a n s a c ti o n s u c h a s
a l o a n a g r e e m e n t?
D R J O N AT H A N Z O R A H B L O O M : Th a t is n o t e n ti r e ly a lw a y s t h e c a s e .
I n t h i s p a r ti c u l a r c a s e t h i s w a s e x is ti n g d e b t w it h in Tr a n s n e t .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o o n e c a n t a k e y o u r e x is ti n g

d e b t a n d h e d g e it ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : O r y o u c a n ta k e a p a r ti c u l a r lo a n
a t a ti m e a n d h e d g e t h e i m p li c a t io n s o f t h a t l o a n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t t h a n k y o u .
C H A I R P E R S O N : W e l l I d o n o t k n o w I a m tr y in g t o l o o k a t t h e – w h a t
a p p e a r e d t o m e i n i t ia ll y t o b e a s u b tl e d i s t in c t i o n t h a t m a y – y o u m a y
b e s e e k in g t o m a k e h e r e i n r e g a r d t o t h e e a r li e r q u e s ti o n I h a d a s k e d
w h e t h e r a s w o p o r a tr a n s a c ti o n m u s t a l w a y s b e p r e c e d e d b y a n o t h e r
10

tr a n s a c ti o n . I t s e e m s t o m e t h a t e v e n h e r e y o u d o h a v e a p r e – a p r e e x i s ti n g tr a n s a c ti o n o r t r a n s a c t io n s b e c a u s e y o u d o a lr e a d y h a v e a
lo a n . T h o s e l o a n s – t h a t l o a n m u s t b e b a s e d o n a tr a n s a c ti o n o r b a s e d
o n a n u m b e r o f tr a n s a c t io n s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : Ye s . S o g o i n g b a c k to t h e a n s w e r y o u h a d g iv e n t o
m y q u e s t i o n e a r li e r i t s h o u l d s t il l a p p ly t h a t y o u c a n n o t h a v e a s w o p
a r r a n g e m e n t w i t h o u t a p r e - e x is t in g t r a n s a c t io n . I t c a n b e a tr a n s a c ti o n
o r tr a n s a c t io n s m a y b e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a i r y o u n e e d d e b t.

20

C H A I R P E R S O N : Ye s t h e r e m u s t a d e b t .
D R J O N AT H A N Z O R A H B L O O M : Yo u n e e d t o h a v e …
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : Yo u n e e d t o h a v e in c u r r e d d e b t .
C H A I R P E R S O N : Ye s , y e s .
D R J O N AT H A N Z O R A H B L O O M : To b e a b le t o d o t h e tr a n s a c t io n .

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CHAIRPERSON:

Ye s a n d t h e d e b t c a n n o t c o m e a b o u t w i t h o u t s o m e

tr a n s a c ti o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : J a o k a y a l r i g h t . I j u s t w a n t to m a k e s u r e I – b e c a u s e
I h a d c o m e t o u n d e r s ta n d i t in a c e r t a i n w a y a n d I w a n t t o m a k e s u r e
t h a t i t is s ti ll fi n e – s t il l a p p l ie s .
D R J O N AT H A N Z O R A H B L O O M : Ye s .
C H A I R P E R S O N : O k a y.
A D V PA U L J O S E P H P R E TO R I U S S C :
10

So as I understand what

h a p p e n e d h e r e w a s th a t s o m e o n e o r o th e r e a r m a r k e d R 11 . 3 b il li o n o f
Tr a n s n e t d e b t fr o m i ts b o o k ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d s a i d w e a r e g o i n g t o h e d g e
t h is ?
D R J O N AT H A N Z O R A H B L O O M : T h a t i s r i g h t .
A D V PA U L J O S E P H P R E TO R I U S S C : F r o m f lo a ti n g t o fi x e d ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A l r i g h t . N o w w h a t i s in t e r e s ti n g
h e r e is t h e r o l e t h a t R e g i m e n ts o r R e g i m e n t s r e la t e d e n ti ti e s p l a y e d .

20

T h e p e r s o n i n d e b t a t t h is s ta g e – t h e p e r s o n l i a b le f o r t h e d e b t w a s
Tr a n s n e t .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : T h e c o u n t e r p a r ty i n t h e h e d g in g
tr a n s a c ti o n w a s w h o ?
D R J O N AT H A N Z O R A H B L O O M : T h e P e n s io n F u n d .

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S S C : Tr a n s n e t ’s P e n s io n F u n d ?
D R J O N AT H A N Z O R A H B L O O M : Ye s , T S D B F.
A D V PA U L J O S E P H P R E TO R I U S S C :

S o w e h a v e t h e s it u a ti o n -

w h e t h e r e x tr a o r d i n a r y o r n o t t h a t i s f o r a la t e r c o m m e n t - w h e r e
Tr a n s n e t i s a s - y o u d e s c r ib e d t o th e C h a i r e a r li e r – b e t t in g a g a i n s t i ts
P e n s io n F u n d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d th e r e c a n o n ly b e o n e

winner?
10

D R J O N AT H A N Z O R A H B L O O M :

I w a s j u s t g o i n g t o s a y th a t .

There

c a n o n l y b e o n e w i n n e r, c o r r e c t .
C H A I R P E R S O N : L e t m e m a k e s u r e I f o ll o w t h a t . T h is 11 . 3 b i ll io n d e b t
t h a t Tr a n s n e t h a d – h a d is n o t c o n n e c t e d w i th t h e f u n d .

Th e fu n d is

g o i n g t o b e a n o th e r p a r ty to t h e s w a p tr a n s a c t io n ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : O h , o k a y a lr i g h t .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o i f o n e g o e s b a c k to o u r

e x p l a n a t o r y b o x e s th a t w e s t a r t e d o ff th is m o r n i n g th e r ig h t h a n d s i d e
o f y o u r e x p l a n a t o r y d i a g r a m is Tr a n s n e t d e b t t o v a r i o u s c r e d i t o r s …
20

D R J O N AT H A N Z O R A H B L O O M : C o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : Th a t r e m a i n s b u t Tr a n s n e t s a y s I
a m n o w g o i n g t o h e d g e t h e f lo a ti n g in t e r e s t r a t e d e b t a n d th e
c o u n t e r p a r ty in t h is h e d g e i s g o i n g t o b e Tr a n s n e t S e c o n d D e fi n e d
B e n e f i t Fu n d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.

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A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t .
C H A I R P E R S O N : S o – s o i t i s n o t a r e q u i r e m e n t t h a t in a – in a s w a p
tr a n s a c ti o n i t is n o t a r e q u i r e m e n t t h a t o n e o f t h e p a r ti e s b e a b a n k o f
fi n a n c i a l in s ti t u t i o n o r i s i t a – a n e s s e n t i a l r e q u ir e m e n t ?
D R J O N AT H A N Z O R A H B L O O M : C h a i r …
C H A I R P E R S O N : I s e e th is is a f u n d a s o p p o s e d to N e d b a n k o r A b s a .
D R J O N AT H A N Z O R A H B L O O M :

C h a ir th is is – t h is i s v e r y u n u s u a l .

Yo u w o u ld – b e c a u s e t h e f u n d is – is – h a s s u ffic ie n t c o l la t e r a l a n d
f u n d s t h a t is w h y t h e y w o u l d – th a t is w h y t h e y w o u l d b e a b le t o e n te r
10

in t o th is t y p e o f tr a n s a c ti o n .

I n o t h e r w o r d s if – i f t h e r a t e o r i f th e

s w a p w e n t a g a in s t t h e m t h e n th e y w o u ld b e a b l e to p a y.
A D V PA U L J O S E P H P R E TO R I U S S C : F r o m p e n s i o n e r s ’ m o n e y ?
D R J O N AT H A N Z O R A H B L O O M :

F r o m p e n s i o n e r s ’ m o n e y.

S o t h a t is

w h a t m a k e s t h e – th a t i s w h a t m a k e s th i s tr a n s a c ti o n v e r y u n u s u a l i n
t e r m s o f u s in g a – a p e n s io n fu n d a s a c o u n t e r p a r ty f o r a s w a p
tr a n s a c ti o n .
CHAIRPERSON:

I – I can understand that in the context of a bank

b e i n g p a r ty t o a s w a p tr a n s a c t i o n t h a t t h e r e m a y b e – t h e m o tiv e f o r
e n g a g i n g in a s w a p tr a n s a c ti o n w o u l d b e th a t th e y a r e c o n f id e n t w i t h
20

t h e ir f o r e c a s t o n in t e r e s t r a t e s a n d t h e y t h i n k th e y w i ll – t h e y s t a n d a
g o o d c h a n c e o f m a k i n g m o n e y.
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
CHAIRPERSON:

A n d th e y a r e i n t h e f in a n c i a l s e c t o r.

T h a t is – t h a t

f o r m s p a r t o f t h e ir c o r e b u s i n e s s . N o w i f i t is s o m e b o d y e ls e I g u e s s
t h e p r in c i p l e – t h e s a m e m o ti v e m i g h t s t il l a p p ly e x c e p t th a t i n a c e r t a i n

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s e t o f f a c ts a n e n t i ty t h a t m a y n o t b e a b a n k m a y b e u n n e c e s s a r i ly
t a k i n g a r is k . Is th a t r i g h t?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
C H A I R P E R S O N : O k a y, th a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S

SC:

Ye s

C h a ir

the

fu r t h e r

i m p l ic a t i o n s w il l e m e r g e a s w e p r o c e e d in e v i d e n c e . W h a t is s ig n if ic a n t
a b o u t t h i s t r a n s a c t io n q u i te a p a r t fr o m w h a t t h e C h a ir h a s q u e s ti o n e d
y o u a b o u t is th e r o l e t h a t R e g i m e n t s p la y e d o r R e g i m e n ts r e la t e d
e n t i ti e s p l a y e d . W h o w e r e t h e Fu n d M a n a g e r s o f t h e b e n e fi t f u n d ?
10

D R J O N AT H A N Z O R A H B L O O M :

C h a ir R e g i m e n t s F u n d M a n a g e r s

w h ic h i s a n o th e r c o m p a n y a d i ff e r e n t c o m p a n y to t h e R e g i m e n ts
p r o v i d in g c o n s u l t in g o r a d v is o r y s e r v i c e s t o Tr a n s n e t w e r e a ls o – w e r e
t h e f u n d a p p o i n te d b y th e P e n s i o n Fu n d a s th e ir Fu n d M a n a g e r s .
CHAIRPERSON:
A D V PA U L J O S E P H P R E TO R I U S S C : A r e t h e y r e la t e d c o m p a n ie s ?
D R J O N AT H A N Z O R A H B L O O M : W e l l t h e y a r e fr o m t h e s a m e s t a b le . I
a m n o t s u r e i f t h e y – h o w th e p a r t i e s r e l a t e t o e a c h o th e r.
A D V PA U L J O S E P H P R E TO R I U S S C : W e l l y o u s a y s o .
D R J O N AT H A N Z O R A H B L O O M : Ye s . T h e y r e l a t e d in t e r m s o f t h e – in
20

t e r m s o f th e g r o u p .
A D V PA U L J O S E P H P R E TO R I U S S C : R i g h t. S o th e y p a r t o f th e s a m e
g r o u p o r s ta b le ?
D R J O N AT H A N Z O R A H B L O O M : Ye s .
CHAIRPERSON: So …
A D V PA U L J O S E P H P R E TO R I U S S C :

S o R e g i m e n ts F u n d M a n a g e r s

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05 JUNE 2019 – DAY 106
are the
CHAIRPERSON: Huh-uh.
A D V PA U L J O S E P H P R E TO R I U S S C :

F u n d M a n a g e r s o f th e D e f in e d

B e n e f i t Fu n d o f Tr a n s n e t?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d o b v io u s ly a s F u n d M a n a g e r s
t h e y p la y a r o l e i n th e d e c is i o n m a k i n g r e g a r d i n g in v e s t m e n t s ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :
10

Right.

Sorry

C h a ir

did

I

in t e r r u p t ?
C H A I R P E R S O N : N o y o u a s k e d e x a c tly th e s a m e q u e s ti o n I w a n t e d t o
a s k . S o th a t is o k a y – th a t is o k a y.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d th e o th e r R e g i m e n ts in t h e

s t a b l e w h a t r o le d i d t h e y p la y i n r e la t io n t o Tr a n s n e t i ts e l f ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir t h e y w e r e th e – t h e p a r ty t h a t

w e r e t h e a d v i s o r y – t h e a d v is o r s t o Tr a n s n e t o n v a r i o u s tr a n s a c ti o n s .
S o it w a s – th e r e a p p e a r e d t o b e t h e t w o p a r ti e s d i s c u s s i n g t h e
tr a n s a c ti o n s w i th e a c h o t h e r t o g e t h e r w i th Tr a n s n e t .
A D V PA U L J O S E P H P R E TO R I U S S C :
20

S o g o b a c k t o y o u r e a r li e r

c o m m e n t s r e g a r d i n g o n e c o u n te r p a r ty “ b e t t in g ” a g a in s t t h e o t h e r
c o u n t e r p a r ty o n d i ff e r e n t p r e m i s e s a n d f o r e c a s ts a n d y o u r c o m m e n t i n
a d d it i o n t o t h a t t h e r e c a n o n ly b e o n e w i n n e r a n d th e r e fo r e o n e l o s e r.
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

R e g i m e n ts i n w h a t e v e r p a r t o f

t h e s t a b l e a r e o n t h e o n e h a n d c o n d u c t in g th e tr a n s a c t i o n o n b e h a l f o f

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Tr a n s n e t a n d a d v is i n g Tr a n s n e t. C o r r e c t?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d o n t h e o t h e r h a n d a r e th e

F u n d M a n a g e r s in c o n tr o l o f t h e i n v e s t m e n ts o f t h e P e n s i o n F u n d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t . T h e q u e s ti o n o f c o n f lic t
o f i n t e r e s t o b v i o u s l y a r is e s b u t t h a t i s a le g a l is s u e .
CHAIRPERSON:

Ye s .

S o in th e th ir d b u l le t p o in t a t p a g e 4 8

R e g i m e n t s Fu n d M a n a g e r s P ty L td y o u s a y th e r e :
“ A t t h e t i m e o f t h is tr a n s a c ti o n a p a r t y r e l a te d to

10

R e g i m e n t s ( R e g i m e n ts F u n d M a n a g e r s ( P t y ) L t d ) . ”
Is th a t – i s t h a t th e p a r ty t h a t – t h a t w a s t h e F u n d M a n a g e r f o r T S D B F
o r R e g i m e n ts F u n d M a n a g e r s w a s t h e o n e t h a t R e g i m e n t s w e r e u s i n g ?
D R J O N AT H A N Z O R A H B L O O M :

R e g i m e n ts F u n d M a n a g e r s w e r e t h e

f u n d m a n a g e r s o f t h e T S D B F. T h a t i s c o r r e c t C h a ir.
C H A I R P E R S O N : O h o k a y, o k a y. O k a y. I t i s a – i t i s a q u e s t i o n o f –
f o r m e o n c e y o u h a v e g o t b r a c k e t s t h e r e i t m e a n s s o m e th in g e ls e b u t i f
y o u p u t c o m m a s o n e i t h e r s i d e i t m e a n s e x a c tl y w h a t y o u a r e s a y i n g .
So …
20

D R J O N AT H A N Z O R A H B L O O M : A p o l o g ie s C h a ir.
C H A I R P E R S O N : O k a y, a lr ig h t .
A D V PA U L J O S E P H P R E TO R I U S S C :

O k a y. Yo u m a k e t h e p o i n t th e n

t h a t w e h a v e j u s t a l l u d e d to o n p a g e 4 9 a t th e fi r s t b u ll e t. W o u l d y o u
s t a te o r e x p l a i n th a t w i t h t h e C h a ir ?
D R J O N AT H A N Z O R A H B L O O M :

Ye s C h a ir I th in k in th is – t h is

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tr a n s a c ti o n is n o d i ff e r e n t to t h e tr a n s a c ti o n s c o n c l u d e d p r e v io u s ly o n
t h e – t h e R 1 2 b il li o n c l u b l o a n . Tr a n s n e t in t h is p a r tic u la r c a s e w o u ld
p a y t h e fi x e d r a t e t o t h e T S D B F a n d r e c e iv e t h e fl o a ti n g r a te n o t io n a l ly.
A s w e h a v e b e e n d is c u s s i n g a n d t h e f u n d s o f th e p e n s i o n e r s w o u l d b e
u s e d t o c o v e r th e p o s i ti o n i f f l o a t in g r a te s e x c e e d e d th e fix e d r a t e .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o if t h e fu n d l o s t t h e g a m b l e

a n d w a s t h e l o s e r w h o w o u l d f u n d th a t l o s s ?
D R J O N AT H A N Z O R A H B L O O M :

T h e f u n d w o u ld , ja – i f t h e – i f th e

fl o a ti n g r a t e s e x c e e d e d t h e f ix e d r a t e s t h a t Tr a n s n e t w e r e p a y i n g t h e
10

f u n d t h e n t h e f u n d w o u l d h a v e to p a y Tr a n s n e t fr o m t h e – fr o m t h e
( in t e r v e n e s ) .
A D V PA U L J O S E P H P R E TO R I U S S C : P e n s io n e r s ?
D R J O N AT H A N Z O R A H B L O O M : J a .
CHAIRPERSON:

So they were going to put the pensioners’ money at

r is k ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s a n d w e w i ll c o m e t o o n e o f
t h e p o s s i b le r e a s o n s w h y in a m o m e n t C h a ir.

I n a n y e v e n t u n d e r th e

s e c o n d b u ll e t y o u r a is e a q u e s ti o n w h ic h y o u d o n o t a n s w e r.
20

It says

m e r e ly u n d e r i n v e s t ig a ti o n . T h e q u e s t io n w h e t h e r it w o u ld b e l a w f u l in
t e r m s o f P e n s io n L e g is l a ti o n R u le s a n d P o l ic i e s t o p u t f u n d s a t r is k i n
t h is m a n n e r.
D R J O N AT H A N Z O R A H B L O O M :

Th a t i s c o r r e c t b e c a u s e C h a ir i n

t e r m s o f t h e - n o r m a lly a n in v e s t m e n t p o lic y s ta t e m e n t w h ic h i s
u n d e r s c o r e d b y t h e – b y t h e F u n d R u le s w o u l d p l a c e r e s tr i c t i o n s o n t h e

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ty p e s o f i n v e s t m e n t o r th e ty p e s o f i n s tr u m e n ts th a t o n e c o u l d u s e a n d
t h a t – th e i n te n ti o n b e h i n d t h a t is j u s t to p r e v e n t ta k i n g t o o m u c h r i s k
…
C H A I R P E R S O N : Ye s , ja .
D R J O N AT H A N Z O R A H B L O O M : A t t h e e x p e n s e o f – o f …
CHAIRPERSON: Pensioners.
D R J O N AT H A N Z O R A H B L O O M : O f t h e p e n s i o n e r s ’ f u n d s .
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :
10

So yes the – as Advocate Pretorius

in d i c a t e d o n e m u s t a l s o r e m e m b e r t h a t t h e Tr a n s n e t P e n s io n F u n d i s
n o t a S o u t h A fr ic a n – a R e g u l a ti o n 2 8 P e n s i o n F u n d . I t i s f a l ls u n d e r
t h e a u s p ic e s o f Tr a n s n e t b u t t h e r e – b u t i t w o r k s o n e x a c tl y t h e s a m e
b a s is . Th e r e a r e F u n d R u l e s . T h e r e a r e in v e s t m e n t p o l ic ie s e tc e te r a .
S o t h is is – t h is a ls o n e e d s t o b e u n d e r s t o o d i n t h e – in th e b r o a d e r
c o n te x t a s – a s w a s i n d ic a te d it is a le g a l m a t t e r b u t in – in o t h e r w o r d s
w a s – w a s th e T S D B F c o m m i t te d to a c t u a l l y e n g a g e in t h i s tr a n s a c ti o n .
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s a n d a s y o u s a y i t is n o t t h e
P e n s io n Fu n d A c t. I t is t h e Tr a n s n e t P e n s io n Fu n d A c t t h a t i s a t is s u e
here.

20

D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

B u t t h e r e a r e a ls o F u n d R u l e s

a n d i n v e s t m e n t p o lic y s ta t e m e n ts ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

B u t y o u h a v e a s i t u a t io n h e r e

w h e r e o n e w o u ld t h i n k g e n e r a l p r in c i p l e s w o u ld a p p ly.

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R e g i m e n ts

05 JUNE 2019 – DAY 106
u n d e r o n e g u is e i s d u t y b o u n d t o a c t i n t h e i n t e r e s t o f t h e fu n d b e c a u s e
it is th e F u n d M a n a g e r.
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

R e g i m e n ts i n a n o th e r g u is e is

d u t y b o u n d to a c t i n th e i n t e r e s t o f Tr a n s n e t …
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

B e c a u s e i t is e m p lo y e d b y

Tr a n s n e t t o e x e c u t e t h e f u n d s a n d p a y t h e f e e t o d o s o .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
10

A D V PA U L J O S E P H P R E TO R I U S S C :

To e x e c u te t h e tr a n s a c ti o n s .

It

was paid a fee to do so. Correct?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : C o n fli c t o f i n te r e s t s e e m s p r e t ty
o b v i o u s b u t w e w il l d o t h a t in d u e c o u r s e C h a ir. W e w i l l n o t d e a l w it h i t
here.
CHAIRPERSON:

Is – is t h e r e a n y p o s s ib l e s i g n i fic a n c e in th e

c lo s e n e s s o f t h e a m o u n ts i n v o l v e d i n t h e s e t w o tr a n s a c ti o n s w h e r e
s w a p a r r a n g e m e n t s w e r e i n v o lv e d ?

T h e o n e w a s R 1 2 b i ll io n .

Th e

o th e r o n e i s r 11 . 3 b il li o n o r i s i t a c o i n c i d e n c e .
20

D R J O N AT H A N Z O R A H B L O O M : C h a ir t h a t is a v e r y g o o d q u e s t io n . I
d o n o t k n o w b u t i n my c o n c l u s io n s I w i ll v e n t u r e a n o p i n i o n i n t e r m s o f
– o f th e v a r io u s tr a n s a c ti o n s .
C H A I R P E R S O N : Ye s . I t is q u i t e s tr a n g e . M a y b e i t i s n o t s tr a n g e t o …
D R J O N AT H A N Z O R A H B L O O M : Ye s .
C H A I R P E R S O N : P e o p l e w h o a r e i n th e f i n a n c i a l s e c t o r. I t is – it is –

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05 JUNE 2019 – DAY 106
w h e n y o u h a v e a t r a n s a c t io n i n v o lv i n g R 1 2 b i ll io n f o r w h ic h y o u d e c id e
t h e r e s h o u ld b e a s w a p a r r a n g e m e n t a n d t h e n a m o n g a ll y o u r d e b ts y o u
s a y o k a y d e b ts a m o u n ti n g t o R 11 . 3 b il li o n a ls o I w i ll h a v e a s w a p
tr a n s a c ti o n .
A D V PA U L J O S E P H P R E TO R I U S S C : W e l l t h e q u e s ti o n a r is e s a n d t h is
q u e s t io n w i ll h o p e fu ll y b e a n s w e r e d a t t h e e n d o f a l l th e e v i d e n c e .
CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C :

A v e r y lu c r a t iv e f o r c e r t a i n

parties arrangement …
10

CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C : H e d g i n g a r r a n g e m e n t is e n te r e d
in t o …
CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C : R e l a ti n g t o R 1 2 m il li o n .
CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C : D i d s o m e o n e n o t s a y w e ll l e t u s
do it again?
CHAIRPERSON: And of course you have just told us that there seemed
t o b e – th e r e w a s s o m e r e l a ti o n s h i p b e t w e e n t h e F u n d M a n a g e r s t h a t

20

w e r e u s e d f o r i n t h is o n e a n d R e g i m e n t s i n th e o t h e r o n e ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir. I t h in k I m i g h t
ju s t t h e n c o m m e n t …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :
said.

O n w h a t A d v o c a te P r e t o r iu s h a s j u s t

O n e m u s t r e a l is e a n d i t a l s o r e l a t e s b a c k t o y o u r q u e s ti o n is a

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05 JUNE 2019 – DAY 106
c o i n c i d e n t a l t h a t w e a r e ta lk in g a b o u t 1 2 b i lli o n a n d v e r y c lo s e t o
a n o t h e r 1 2 b i ll io n . I f y o u l o o k a t i t – i f y o u lo o k a t h o w t h e tr a n s a c t io n s
w e r e s tr u c t u r e d i n o t h e r w o r d s w e s t a r t e d o ff w i th 4 . 5 b il li o n a n d t h a t
w e n t t h r o u g h v e r y e a s i ly. I f y o u l o o k in t h a t – i f th a t w o r k s w h y n o t d o
it a g a i n . S o t h e n le t u s t r y 7 .5 - th e o th e r p o r ti o n o f t h e 1 2 b i ll i o n a n d
if t h a t w o r k s g r e a t l e t u s tr y i t a g a i n a n d e a c h t i m e i t in c r e a s e d b y a
s ig n if ic a n t f a c t o r fr o m 4 . 5 t o 7 .5 t o 11 . 3 . S o – s o th e q u e s t i o n is t h is –
t h is w a s a n i n te r e s t i n g tr e n d th a t w a s – t h a t w a s e m e r g in g i n te r m s o f
t h is c o n ti n u o u s ly s w a p p in g o f fl o a ti n g t o fi x e d r a t e s .
10

C H A I R P E R S O N : Ye s , t h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C : I n a n y e v e n t w e k n o w t h a t t h e s e
is s u e s w h ic h y o u a r e n o w m a k i n g c o m m e n t o n a n d r e n d e r i n g y o u r
o p i n i o n a r e i n d e e d t h e s u b je c t o f l i ti g a t i o n .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d a ls o t h e s u b je c t o f f u r t h e r

in v e s t i g a t io n .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

W h ic h w e h o p e to c o n c l u d e a t

le a s t t o a d e g r e e fr o m t h e p a r t o f t h e in v e s ti g a to r s a n d l e g a l t e a m i n
20

d u e c o u r s e C h a ir. N o w t h e r e is a s c h e d u le o n p a g e 5 0 w h e r e l ik e t h e
s c h e d u l e s t h a t y o u d e a l t w i th th is m o r n in g t h e l o s s t o Tr a n s n e t is
q u a n ti fi e d .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : A lr i g h t . W h a t a r e t h e s e l o s s e s ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir

Page 124 of 143

the

–

the

approach

to

05 JUNE 2019 – DAY 106
u n d e r s t a n d in g th e t a b le is e x a c tly t h e s a m e a s – a s th e p r e v i o u s ta b l e .
I n o t h e r w o r d s i f y o u l o o k a t t h e th ir d c o lu m n f r o m t h e r i g h t t h e r e a l is e d
c a s h fl o w.

T h is i s a ls o a t 1 4 M a y.

Tr a n s n e t h a v e i n c u r r e d a c t u a ll y

lo s s e s . I n o t h e r w o r d s t h e y p h y s ic a lly p a i d R 7 2 0 . 8 m il li o n .
A D V PA U L J O S E P H P R E TO R I U S S C :

S o i n a d d i ti o n to t h e in t e r e s t

t h e y a r e p a y i n g t o t h e l e n d e r i n t h e o r i g in a l tr a n s a c ti o n ?
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a ir b e c a u s e t h i s h a s g o t t o d o
with a swap.
A D V PA U L J O S E P H P R E TO R I U S S C :
10

Ye s a n d t h a t i s a d i s c r e e t

s e p a r a t e tr a n s a c t io n a s w e h a v e l e a r n t ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t a n d t h e n th e – t h a t is
the 720.

T h e n i f Tr a n s n e t w e r e t o – t o e x is t t h i s – t h i s p a r ti c u l a r

tr a n s a c ti o n th a t t h e 1 4 t h – o n 1 4 M a y i t w o u l d h a v e c o s t t h e m 8 1 5
m il li o n . S o i f w e t a k e th e t h i r d a n d t h e s e c o n d c o l u m n fr o m t h e r ig h t
a n d w e a d d t h e m t o g e th e r th e p o t e n ti a l l o s s w o u l d b e 1 . 5 b i ll io n w h ic h
is t h e n a n a c tu a l l o s s a t t h i s p o in t i n ti m e o r a t l e a s t o n 1 4 M a y o f 7 2 0
a n d i f th e y w a n t e d t o e x i t t h e tr a n s a c ti o n if t h e y w e n t – i f t h e y w e n t t o
t h e T S D B F a n d th a t is w h a t m a k e s t h i s t h i n g v e r y c o m p l ic a te d .
w e n t t o th e T S D B F n o w a n d s a i d lis t e n .
20

They

We now went to – we are

paying you.

Yo u c a n s e e w e a r e p a y i n g y o u a n d w e w a n t to e x i t t h e

tr a n s a c ti o n .

T h e n t h e T S D B F j u s t b a s e d o n m a r k e t – m a r k e t i n p u ts

w o u ld t e l l th e m t h a t y o u n e e d t o p a y u s b e c a u s e w e h a v e e n t e r e d in t o a
– a 1 5 y e a r a g r e e m e n t . Yo u n e e d t o p a y u s R 8 1 5 m il li o n .
A D V PA U L J O S E P H P R E TO R I U S S C :

Be cause that would be our loss

if y o u e x i t ?

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05 JUNE 2019 – DAY 106
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d a c c o r d i n g t o t h a t is t h a t

w h a t Tr a n s n e t w o u l d h a v e lo s t o v e r th e f u ll p e r i o d ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C :

So this swap this hedging

e x e r c is e h a s a lr e a d y c o s t Tr a n s n e t R 7 2 0 m il li o n a n d o v e r t h e f u l l
p e r i o d o f t h e s w a p tr a n s a c ti o n w o u l d o n p r e s e n t d a y c a lc u l a ti o n s c o s t
R 1 . 5 b il li o n ?
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
10

A D V PA U L J O S E P H P R E TO R I U S S C :

N o w t h e i n te r e s t in g f a c t .

Yo u

s a y t h e r e c a n b e a w i n n e r a n d a l o s e r i n e q u iv a l e n t a m o u n ts .

Who

b e n e fi t te d h e r e ?
D R J O N AT H A N Z O R A H B L O O M : T h e P e n s io n F u n d .
A D V PA U L J O S E P H P R E TO R I U S S C : B y a n a m o u n t o f s o f a r a n y w a y ?
D R J O N AT H A N Z O R A H B L O O M : 7 2 0 m il li o n .
A D V PA U L J O S E P H P R E TO R I U S S C : 7 2 0 m il li o n b u t h e r e is a f u r t h e r
q u e s t io n . R e g i m e n ts a r e t h e F u n d M a n a g e r s . Th e r e w i ll b e e v id e n c e
C h a ir t h a t a s F u n d M a n a g e r s R e g i m e n t s a r e e n t i tl e d t o a s i g n i f ic a n t
p o r t i o n o f t h e in v e s t m e n t u p s i d e . S o th e y w o u l d g e t a c u t o f th a t R 7 2 0
20

m il li o n ?
CHAIRPERSON:

A n d – a n d i s t h a t i n a d d i ti o n to f e e s o r th a t i s th e

f o r m o f t h e ir f e e s ?
A D V PA U L J O S E P H P R E TO R I U S S C :

N o t h e y w o u l d g e t th e ir f e e s

fr o m Tr a n s n e t .
C H A I R P E R S O N : S e p a r a t e , y e s , y e s . O h , in a d d it i o n …

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S S C : F o r – f o r d o i n g t h e s w a p .
CHAIRPERSON:

I n a d d i t io n g e t s o m e p e r c e n ta g e o f th is a m o u n t th a t

must go to …
A D V PA U L J O S E P H P R E TO R I U S S C : S o i n s o fa r a s it is R e g i m e n t s …
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C : I s o n e t h e t w o e n ti ti e s a r e …
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C : A r e o f t h e s a m e s ta b le .
C H A I R P E R S O N : Ye s .
10

A D V PA U L J O S E P H P R E TO R I U S S C : Th e y g e t p a id b y Tr a n s n e t o n t h e
one hand …
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P E TO R I U S : Fo r d o i n g t h e s w a p …
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C : A n d o n t h e o th e r h a n d t h e y g e t a
c u t o f t h e p r o fi ts m a d e b y t h e P e n s i o n F u n d …
CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C : To a s ig n i f ic a n t a m o u n t …
CHAIRPERSON: Hm.

20

A D V PA U L J O S E P H P R E TO R I U S S C :

And that may for the moment

o n ly a q u e s ti o n m a r k C h a ir …
CHAIRPERSON: Hm.
A D V PA U L J O S E P H P R E TO R I U S S C : E x p la in …
C H A I R P E R S O N : Ye s .
A D V PA U L J O S E P H P R E TO R I U S S C : W h y th is h a p p e n e d .

Page 127 of 143

05 JUNE 2019 – DAY 106
CHAIRPERSON: Ja.
A D V PA U L J O S E P H P R E TO R I U S S C : W h a t is y o u r v ie w ?
D R J O N AT H A N Z O R A H B L O O M :

Ye s , I t h i n k ju s t t o a n s w e r C h a i r ’s

q u e s t io n …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : Fr o m a f u n d m a n a g e m e n t p e r s p e c ti v e
…
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :
10

Regim ents would get a - a fund

management fee …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

And

if

th e y

did

performance

benchmarks …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : W h ic h r e f e r s to t h e u p s id e …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M :

T h e n t h e y w o u l d g e t a n a d d i t io n a l

fee.
CHAIRPERSON: Hm.
20

D R J O N AT H A N Z O R A H B L O O M :

S o – s o th e r e a r e – y o u a r e r i g h t

C h a ir.
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : T h e r e a r e t w o fe e s in v o lv e d …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : O v e r a n d a b o v e th e e x e c u ti o n o f t h e

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05 JUNE 2019 – DAY 106
tr a n s a c ti o n s .
CHAIRPERSON:

Ye s .

S o i t w il l b e i m p o r t a n t t o e s t a b l is h h o w

R e g i m e n t s g o t t o b e t h e Fu n d M a n a g e r s f o r t h e F u n d – f o r t h e P e n s i o n
Fund.
A D V PA U L J O S E P H P R E TO R I U S S C :

Ye s a n d c o u l d s i t in

this

tr a n s a c ti o n o n b o th s i d e s o f t h e f e n c e .
C H A I R P E R S O N : Ye s , y e s . J a , o k a y.
A D V PA U L J O S E P H P R E TO R I U S S C : P r o f it in g fr o m b o t h s id e s .
CHAIRPERSON: Ja.
10

A D V PA U L J O S E P H P R E TO R I U S S C :

W h e n t h e d u t y o f g o o d f a it h i s

h e l d t o b o th n o t o n e b u t t h o s e w i ll b e – th o s e q u e s ti o n s w il l b e
a d d r e s s e d i n th e fu ll n e s s o f t i m e .
CHAIRPERSON: Ja.
A D V PA U L J O S E P H P R E TO R I U S S C :

F o r t h e m o m e n t w e a r e l a y in g

t h e b a s is f o r p o s s i b l e q u e s ti o n s t o b e a s k e d a n d p e r h a p s a n s w e r e d in
d u e c o u r s e . C o n c l u s io n s o n p a g e 5 2 D r B l o o m .
D R J O N AT H A N Z O R A H B L O O M : C h a ir I h a v e i d e n t i fi e d fiv e – w e h a v e
s p o k e n a l o t a b o u t v a r i o u s a s p e c ts a n d I h a v e id e n ti fi e d fi v e p o in t s th a t
I t h i n k a r e – a r e r e l e v a n t i n t e r m s o f a c o n c l u s i o n . T h e fi r s t o n e d e a l s
20

w i t h t h e e x p e r t is e a n d s k i ll s w i t h i n Tr a n s n e t to – t o e x e c u t e t h e s e
tr a n s a c ti o n s .

T h e s e – th e s e p e o p l e w h o h a d t h e k n o w le d g e a n d t h e

u n d e r s t a n d in g a n d t h e s k i ll w e r e s i d e - l i n e d w h e n i t c a m e t o th e s e
tr a n s a c ti o n s .

I n o t h e r w o r d s t h e r e w a s a l m o s t l ik e a p a r a ll e l p r o c e s s

b e i n g r u n a n d – a n d a s a c o n s e q u e n c e th is w a s i n t h e c o n t e x t o f – o f
h i g h ly q u e s ti o n a b le a g r e e m e n t s w i t h t h ir d p a r t y a d v i s o r s . S o t h a t i s m y

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fir s t c o n c l u s i o n . T h e s e c o n d – t h e s e c o n d p o in t h a s t o d o w i th t h e c l u b
lo a n . E n t e r i n g i n t o th e s w a p tr a n s a c ti o n s a s w e h a v e d is c u s s e d o n a
fl o a ti n g r a t e b a s is a n d t h e n d e l ib e r a te ly c h a n g in g th e s c o p e o f t h e
tr a n s a c ti o n b y fix i n g t h e r a t e s i m m e d i a t e l y t h e r e a f t e r o r w i t h i n a v e r y,
v e r y s h o r t p e r i o d is – is q u e s ti o n a b le . S o t h a t i s t h e s e c o n d p a r t . T h e
t h ir d p o in t …
A D V PA U L J O S E P H P R E TO R I U S S C :

Yo u m a k e a n o t h e r p o i n t i n

paragraph 2.
D R J O N AT H A N Z O R A H B L O O M : O k a y.
10

A D V PA U L J O S E P H P R E TO R I U S S C : W h e n y o u s a y i n y o u r v i e w w h a t
t h e r e a s o n w a s f o r e n te r i n g i n to t h e lo a n o n a fl o a ti n g r a te b a s is . W h a t
is y o u r c o n c l u s i o n t h e r e ?
D R J O N AT H A N Z O R A H B L O O M : Th a t t h e – th a t it c o u ld h a v e b e e n – i t
w o u ld h a v e b e e n i n c o n tr a v e n t i o n t o t h e R is k M a n a g e m e n t o r th e
Fi n a n c i a l R is k M a n a g e m e n t P o l ic y o f Tr a n s n e t .

E n t e r in g i n t o t h e

Fl o a ti n g R a t e A g r e e m e n t w o u ld h a v e b e e n d e li b e r a te i f y o u a r e w it h in
t h r e e d a y s g o i n g to c h a n g e t h e – t h e b a s is o f y o u r c o s t o f d e b t to f ix e d .
S o th is w a s – i t c a n n o t b e a n y t h i n g e l s e r e a ll y b e c a u s e a s w e h a v e
d e t e r m i n e d th e r e w o u l d h a v e b e e n s u ffic ie n t in f o r m a t io n o n w h i c h t o
20

b a s e t h e d e c is i o n p r i o r t h e c o n c l u s io n o f t h e lo a n .
CHAIRPERSON:

B u t a l s o is t h e p o s i ti o n n o t t h a t w h o e v e r i t i s a t

Tr a n s n e t w h o d e c i d e d th a t i n r e g a r d t o t h e 1 2 – i n r e g a r d to t h e R 1 2
b i ll io n l o a n t h e i n t e r e s t r a te r e g i m e s h o u l d b e a fl o a t i n g o n e – fl o a ti n g
in t e r e s t r a t e ?

Whoever would have been would have had authority to

m a k e t h a t d e c is i o n w o u ld h a v e k n o w n th a t b e f o r e y o u m a k e t h a t

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d e c is i o n y o u m u s t d o s o m e h o m e w o r k . Yo u m u s t b a s e it o n – o n p r o p e r
a n a ly s is o f t h e r e le v a n t fa c t o r s a n d – a n d d o a fo c u s e d . I s t h a t r i g h t .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : A n d i f h e o r s h e d e c i d e d n o t t o d o th a t f o c u s t o s a y
t h e le a s t th a t w o u l d h a v e b e e n g r o s s ly n e g li g e n t .
D R J O N AT H A N Z O R A H B L O O M : T h a t i s c o r r e c t C h a ir. It w o u l d h a v e
b e e n a n d t h e n i t w o u l d h a v e b e e n a l m o s t a p r e c o n c e iv e d …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : Id e a .
10

C H A I R P E R S O N : Ye s . I t is – i t is a l m o s t i n c o n c e iv a b l e t h a t w h e n s u c h
b i g a m o u n ts a r e i n v o l v e d th a t p e r s o n c o u ld h a v e n e g l i g e n tl y n o t d o n e
the focused.
D R J O N AT H A N Z O R A H B L O O M :

Correct

C h a ir

and

not

followed

p o li c y ?
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : W h y i s p o l ic y t h e n …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : A p p li c a b le .
CHAIRPERSON: Ja.
20

D R J O N AT H A N Z O R A H B L O O M : S o , y e s .
C H A I R P E R S O N : B u t t h e v e r y d e c is i o n th a t h e o r s h e w a s c a ll e d u p o n
t o t a k e n e c e s s a r i ly r e q u i r e d t h a t a f o c u s b e d o n e b e c a u s e o t h e r w is e
h o w d o y o u m a k e a n in f o r m e d d e c i s i o n w h e t h e r i t s h o u l d b e a fl o a ti n g
in t e r e s t r a t e r e g i m e o r a fi x e d r a te r e g i m e .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.

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CHAIRPERSON:

To c h o o s e b e t w e e n t h o s e t w o y o u m u s t – y o u m u s t

have before you the focused.
D R J O N AT H A N Z O R A H B L O O M : A b s o l u te ly t h a t is c o r r e c t .
CHAIRPERSON:

S o – a n d i f t h a t p e r s o n d i d t h e fo c u s e d b e f o r e

c h o o s i n g t h e fl o a t i n g in t e r e s t r a te r e g i m e t h e in f o r m a t io n b e f o r e h i m o r
h e r w o u ld h a v e b e e n t h e s a m e a s t h e i n f o r m a ti o n t h a t w a s b e f o r e h i m
or her when she decided or he decided there should be a swap and it
s h o u l d b e a f ix e d r a te .
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir. T h e y u s e d t h e
10

same system.
CHAIRPERSON:

A n d o n t h e s a m e f a c ts y o u c a n n o t o n t h e o n e h a n d

a r r iv e o n t h e d e c is i o n t h a t a fl o a t i n g r a t e – f lo a ti n g i n te r e s t r a t e r e g i m e
is th e c o r r e c t o n e a n d o n t h e s a m e f a c ts a fe w d a y s la t e r a r r iv e a t t h e
d e c is i o n t h a t t h e – th e c o r r e c t r e g i m e – i n te r e s t r a t e r e g i m e is a fix e d
o n e . I s t h a t a lr i g h t o r a m I – a m I o v e r s t a t in g a n y o f t h e s e th in g s ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir. Yo u a r e n o t o v e r – y o u a r e
n o t o v e r s i m p li fy in g .

I t i s j u s t t h e – it is a v e r y c l e a r u n u s u a l s e t o f

c ir c u m s ta n c e s …
C H A I R P E R S O N : Ye s .
20

D R J O N AT H A N Z O R A H B L O O M : C o m i n g t o d i ffe r e n t c o n c l u s io n s u s i n g
e x a c tl y t h e s a m e i n fo r m a t i o n …
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M : B u t n o t o n ly t h a t i t is – i t is t h e – i t is
t h e s c o p e o f h o w t h o s e c o n c lu s i o n s w e r e a r r iv e d a t .
C H A I R P E R S O N : Ye s .

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D R J O N AT H A N Z O R A H B L O O M :

W h i c h i s – w h i c h is i n t e r e s ti n g

b e c a u s e it w a s n o t a s i f t h e tw o p a r t i e s m i g h t h a v e b e e n c l o s e to g e th e r
in t e r m s o f t h e d e c is i o n . I t - i t a p p e a r s a s i f t h e r e w e r e v e r y o r t o ta ll y
d iv e r g e n t v i e w s p o te n ti a lly o n – o n t h e d e c is i o n w h e r e t o r e m a i n
fl o a ti n g , g o f ix e d o r s t a r t w i th f ix e d e tc e t e r a .
CHAIRPERSON:

It is h i g h ly u n li k e ly t h a t th e p e r s o n w h o m a d e t h a t

d e c is i o n c o u l d c o m e h e r e a n d s a y I d i d n o t d o th e f o c u s e d o r t h e r e w a s
n o t a f o c u s e d o n w h ic h I r e li e d ?
D R J O N AT H A N Z O R A H B L O O M :
10

T h a t is c o r r e c t C h a i r b e c a u s e y o u

h a v e t o – f o r – f o r d e c is i o n s f r o m – fr o m r e a d in g m e m o r a n d a a n d - a n d
so on …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : Fr o m Tr a n s n e t …
CHAIRPERSON: Hm.
D R J O N AT H A N Z O R A H B L O O M : Ev e r y th i n g h a s to b e m o t iv a te a n d …
CHAIRPERSON: Ja.
D R J O N AT H A N Z O R A H B L O O M : A n d ju s ti fi e d .
C H A I R P E R S O N : J a b u t e v e n i f i t h a d n o t b e e n m o ti v a t e d b y s o m e b o d y
e ls e I c a n n o t s e e h o w a n y o r g a n is a t i o n w o u l d a l l o w y o u to o r y o u w o u l d

20

t h i n k y o u w o u l d b e a ll o w e d t o m a k e s u c h a d e c is io n w i t h s u c h f a r
r e a c h i n g f in a n c ia l i m p lic a ti o n s f o r t h e o r g a n is a t i o n w i t h o u t d o i n g t h a t
homework.
D R J O N AT H A N Z O R A H B L O O M : T h a t is – th a t i s c o r r e c t C h a ir.
CHAIRPERSON: And if that person were to come here and say I did do
t h e h o m e w o r k t h e n th e y w o u ld h a v e t o e x p l a in h o w th e y c a m e t o t w o

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c o n tr a d ic ti n g – c o n tr a d ic t o r y d e c is io n s o n th e s a m e m a t e r i a l w i t h i n a
matter of days.
D R J O N AT H A N Z O R A H B L O O M : T h a t is c o r r e c t C h a ir.
C H A I R P E R S O N : Ye s , o k a y t h a n k y o u .
A D V PA U L J O S E P H P R E TO R I U S S C : W e l l y o u d e a l w it h o n e c e r ta i n t y
in p a r a g r a p h 4 o n p a g e 5 2 a n d t h a t is th e a b il i ty t o fo r e c a s t t h e a m o u n t
o f f e e s p a id t o t h ir d p a r ti e s . W h a t i s t h e p o i n t y o u m a k e t h e r e ?
D R J O N AT H A N Z O R A H B L O O M : I n o t h e r – C h a ir a r e y o u ta lk i n g a b o u t
p o i n t 3 o r f o u t?
10

A D V PA U L J O S E P H P R E TO R I U S S C : P o i n t 4 …
D R J O N AT H A N Z O R A H B L O O M : P o i n t 3 .
A D V PA U L J O S E P H P R E TO R I U S S C : B u t y o u c a n g o b a c k t o p o i n t 3 i f
y o u w is h .
D R J O N AT H A N Z O R A H B L O O M :

O k a y.

Ye s th e r e s u l ti n g h e d g in g

tr a n s a c ti o n s w e r e i n t h e m s e lv e s q u e s ti o n a b l e a s w e h a v e – a s w e h a v e
d is c u s s e d a n d a s w e h a v e s e e n i n t h e n u m b e r s t h a t t h e – t h e h e d g in g
c o s t to Tr a n s n e t h a v e b e e n e x c e s s i v e . I n o t h e r w o r d s C h a i r t h e y h a v e
– Tr a n s n e t h a v e n o t b e e n i n th e m o n e y. T h a t is a – t h a t is a m a r k e t
t e r m w h e r e y o u e i t h e r – i t i s e i th e r w o r k in g to y o u r – t h e tr a n s a c ti o n i s
20

w o r k i n g to y o u r b e n e f it o r i t i s n o t w o r k in g to y o u r b e n e f it a n d t h a t i s
w h a t i s – w h a t is i n t e r e s t in g a b o u t th is b u t I w o u l d ju s t li k e t o a d d t o –
t h a t i f I m a y a n d t h a t i s t o d o w i t h – t h e q u e s ti o n i s w o u l d Tr a n s n e t b e
a b l e to g e t in t o t h e m o n e y, i n o th e r w o r d s w o u l d a t s o m e s ta g e o v e r
t h is fi f t e e n y e a r p e r i o d w o u ld Tr a n s n e t b e a b l e to i n o t h e r w o r d s
a c t u a ll y r e c e iv e a b e n e fi t fr o m e n t e r in g i n t o t h e s e s w a p tr a n s a c ti o n s .

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I th i n k w h a t i s i m p o r t a n t is t h a t it ’s – o n e d o e s n ’t – it d o e s n ’ t
h a p p e n a t a p o i n t i n ti m e , y o u h a v e t o t a k e i n to c o n s id e r a ti o n th e
lo s s e s th a t t h e y i n c u r r e d u p t o t o d a t e a n d e v e n i f in t e r e s t r a te s , th e
fl o a ti n g r a t e s w e n t a b o v e t h e f ix e d r a t e s , a s w e ’v e b e e n s p e a k in g it
w o u ld h a v e t o in c r e a s e s i g n i fic a n tly f o r a n e x te n d e d p e r i o d o f ti m e f o r
t h e m t o b e a b l e t o r e c o u p t h e l o s s e s a n d t h e n a c tu a l ly r e c e iv e t h e
b e n e fi t , s o fr o m – i n m y v i e w is i t’s g o i n g t o b e d i ffi c u l t t o a c h i e v e t h a t,
it ’s n o t to s a y i t ’s i m p o s s i b l e , w h o k n o w s w h a t h a p p e n s o v e r 1 5 y e a r s
o r t h e r e m a i n i n g 1 2 o d d y e a r s th a t a r e le f t , b u t i t’s – o n e m u s t n ’ t b e ,
10

o n e m u s t n ’ t l o s e s ig h t o f t h e f a c t t h a t y o u c a n ’ t j u s t ig n o r e w h a t
h a p p e n e d in th e p a s t , y o u h a v e t o u n d e r s t a n d w h a t th a t w a s a n d t h e n
w h a t th e i m p li c a t io n o f t h e f u t u r e is i f y o u g e t in t o a p o s i t io n w h e r e y o u
a c t u a ll y b e n e fi t fr o m t h e tr a n s a c ti o n .
A D V PA U L J O S E P H P R E TO R I U S S C : S o if in t e r e s t r a t e s in r e l a ti o n t o
t h e s w a p s w e r e t o t u r n i n f a v o u r o f Tr a n s n e t i t w o u l d s ti ll h a v e t o
r e c o u p it s l o s s e s b e f o r e i t b e n e fi ts fr o m t h e c h a n g e o f i n te r e s t r a t e s .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir a n d a n e x tr e m e ly
h i g h i n t e r e s t r a te f o r a n e x t e n d e d p e r i o d o f ti m e w o u l d b e r e q u i r e d .
A D V PA U L J O S E P H P R E T O R I U S S C :

20

And one of course must keep

t h is i n p e r s p e c ti v e , t h e lo s s e s r e s u lt i n g fr o m t h e h e d g in g tr a n s a c ti o n s
in r e l a ti o n t o th e R 1 2 b i lli o n l o a n , a l m o s t 1 0 % o f t h a t lo a n , a r e i n
a d d it i o n t o t h e in t e r e s t t h a t Tr a n s n e t is p a y i n g t o t h e l e n d e r s i n t e r m s
o f t h e o r i g i n a l tr a n s a c t io n .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

T h e n i n p o in t f o u r w h a t is t h e

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point you make?
D R J O N AT H A N Z O R A H B L O O M : T h e tr a n s a c ti o n s i n v o lv i n g R e g i m e n t
a n d o t h e r s r e la t e d t o t h e a b o v e r e s u l t e d in t h e p a y m e n t o f e x c e s s iv e
a m o u n t o f fe e s t o th e m , w it h t h e c o r r e s p o n d i n g c o s t to Tr a n s n e t , a s
I’ v e i n d i c a t e d t h a t is a s u b j e c t o f f u r th e r i n v e s ti g a ti o n c u r r e n tl y, t o g e t
a n u n d e r s t a n d i n g o f e x a c t ly h o w m u c h f e e s a r e w e t a l k i n g a b o u t , a n d
h o w t h o s e f e e s w e r e c a lc u la t e d .
T h e – i n t e r m s o f t h e la s t p o i n t C h a ir i n t h e c o n c l u s i o n s , t h e
tr a n s a c ti o n i n v o l v i n g th e T S D B F Tr a n s i t a n d R e g i m e n ts t h e r e a p p e a r s
10

t o b e a n i n t o le r a b l e c o n fl ic t o f in t e r e s t , in e s p e c ia lly w i t h r e g a r d t o t h e
T S D B F a n d th a t n e e d s t o b e u n d e r s t o o d a n d u n p a c k e d i n g o in g
forward.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d th a t w il l s ti ll b e d o n e .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

A n d i n p a r tic u la r w h a t y o u

h a v e n ’t d e a l t w i t h w h ic h s ti ll h a s t o b e d e a l t w i t h i s h o w d i d R e g i m e n ts
a s f u n d m a n a g e r s b e n e fi t fr o m t h e p r o fi t o r u p s i d e e x p e r i e n c e d b y t h e
d e f in e d b e n e f i t f u n d .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir, t h e p e r f o r m a n c e
20

fee.
A D V PA U L J O S E P H P R E TO R I U S S C : Ye s , a lr i g h t s o m e fi n a l r e m a r k s
in r e la t io n to y o u r e v id e n c e b e f o r e w e c o n c l u d e , t h is is n o t i n y o u r
s t a te m e n t b u t it ’s m e r e ly a s u m m a r y h i g h l ig h ti n g c e r ta i n p o i n ts t h a t
y o u ’v e m a d e .

T h e fi r s t p o in t is th a t w e h a v e i n y o u r p r e s e n t a ti o n , o r

y o u h a v e in y o u r p r e s e n t a ti o n a t te m p t e d t o e x p l a in c o n c e p ts i n a w a y

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05 JUNE 2019 – DAY 106
t h a t is a c c e s s ib l e to o u r s e lv e s a n d t h e p u b li c , a n d h a v e a tt e m p t e d t o
s i m p l i fy th e p r o c e s s e s in v o lv e d t o e n a b l e u n d e r s t a n d in g .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : B u t i n r e a l i ty th e s e tr a n s a c ti o n s ,
f o r e x a m p l e a l o a n in v o lv in g s y n d i c a t e d l o a n f u n d i n g , l o n g - t e r m
r e p a y m e n t d a t e s , a n d a t t i m e s o ffs h o r e , i n v o lv i n g e x c h a n g e a r e t h e s e
simple,

c o m p le x

tr a n s a c t io n s ,

are

they

e a s i ly

entered

into

and

n e g o ti a te d ?
D R J O N ATH A N Z O R A H B L O O M :
10

N o C h a ir t h e y a r e n o t s i m p le

tr a n s a c ti o n s a n d t h e y t a k e s o m e ti m e to c o n c l u d e s o y e s t h e r e ’s –
b e c a u s e t h e r e a r e v a r i o u s d i m e n s io n s t o e a c h o n e o f t h e s e a n d in m a n y
c a s e s w h a t w e ’r e t a l k i n g a b o u t h e r e a r e in t e r - r e l a t e d , s o th e m a t te r s
a r e i n t e r - r e l a t e d a n d y o u n e e d to u n p a c k e a c h c o m p o n e n t a s p a r t o f a
broader understanding.
A D V PA U L J O S E P H P R E TO R I U S S C : A n d t h e n y o u ’v e a ls o d e a l t w i t h
a n d e x p l a in e d r i s k m i ti g a ti o n p r o c e s s e s , f in a n c i a l i n s tr u m e n ts u s e d t o
hedge as you’ve described it?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C :

20

H e d g i n g i n s tr u m e n t s t h e

in v o lv e m e n t o f c o u n te r p a r ti e s , t h e n e g o ti a ti o n a n d c o n c lu s i o n o f a
h e d g i n g d e a l , th e i n v o lv e m e n t o f a g e n t s a g a i n a r e t h e s e s t r a ig h t f o r w a r d
m a t t e r s th a t c a n b e c o n c l u d e d w i t h i n a v e r y s h o r t p e r io d o f d a y s ?
D R J O N AT H A N Z O R A H B L O O M : N o C h a i r n o t i f y o u h a v e to a d h e r e t o
v a r io u s p o l ic ie s , a n d v a r i o u s p r o c e s s e s r e l a t e d t o e n t e r in g in t o t h e
tr a n s a c ti o n s .

O u r p l a n n in g i n fo r m a ti o n f r o m t h e m a r k e t is r e l a t iv e l y

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05 JUNE 2019 – DAY 106
s i m p l e , y o u w o u l d p h o n e a c o u p l e o f c o u n te r p a r ti e s o r f in a n c ia l
in s t i tu t io n s a n d g e t th e i n f o r m a t io n y o u ’r e lo o k in g f o r, b u t to u n p a c k
t h a t in f o r m a t io n c o n s id e r t h e i m p a c t o n y o u r d e b t b o o k , w h ic h is w h a t
w e a r e r e f e r r i n g t o h e r e , is a – i t ta k e s a w h il e a n d th e n y o u s t il l h a v e
t o g o th r o u g h t h e p r o c e s s e s o f g e t t in g a p p r o v a l a n d a u t h o r is a ti o n to
e n t e r i n t o t h e t r a n s a c t io n s .
A D V PA U L J O S E P H P R E TO R I U S S C : A n d t h e n o f c o u r s e y o u ’ v e g o t t o
n e g o ti a te t h e tr a n s a c ti o n .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
10

A D V PA U L J O S E P H P R E TO R I U S S C : W i t h e a c h p a r ty s e r v i n g i ts o w n
in t e r e s ts .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : R i g h t, s o w o u l d i t b e f a ir t o s a y
t h a t th e s e a r e h ig h l y c o m p l e x tr a n s a c ti o n s ?
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : R e q u ir i n g d e t a i l e d p r e p a r a ti o n .
D R J O N AT H A N Z O R A H B L O O M : A n d n e g o ti a ti o n s .
A D V PA U L J O S E P H P R E TO R I U S S C :

And negotiation.

Yo u h a v e

s t u d i e d t h e s e tr a n s a c ti o n s ?
20

D R J O N AT H A N Z O R A H B L O O M :

Ye s C h a ir.

A D V PA U L J O S E P H P R E TO R I U S S C :

A n d a c c o r d i n g to y o u r o w n

g e n e r a l k n o w le d g e a n d e x p e r t is e a n d y o u r p a r tic u la r k n o w l e d g e o f
t h e s e tr a n s a c ti o n s a b o u t w h i c h y o u ’v e g iv e n e v i d e n c e a s I u n d e r s ta n d
it y o u a r e a b l e t o m a k e s o m e o b s e r v a t i o n s .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t C h a ir.

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05 JUNE 2019 – DAY 106
A D V PA U L J O S E P H P R E TO R I U S S C :

Ex p r e s s s o m e o p i n i o n . L e t m e

a s k th is q u e s ti o n t h e n , t h e s e tr a n s a c ti o n s , t h e o r ig i n a l C l u b L o a n f o r
example, and

the

changes

made

to

d e c is i o n s c o n c e r n i n g

these

tr a n s a c ti o n s , fo r e x a m p l e t h e d e c is i o n n o w to h e d g e in e ff e c t to p a y a
fi x e d i n t e r e s t r a t e in t h e s w a p tr a n s a c ti o n , w e r e th e s e a d h o c c h a n g e s
c a u s e d b y a n i n te r v e n in g m a r k e t c h a n g e , o r s i m p l y a c h a n g e o f m i n d o r
c a n y o u s a y w h e t h e r th e y w e r e p r e - p l a n n e d i n y o u r o p i n i o n ?
D R J O N AT H A N Z O R A H B L O O M :

C h a ir i n m y v i e w t h is w a s p r e -

p l a n n e d a n d o n e o f t h e r e a s o n s f o r t h a t is t h e r e a r e s o m a n y
10

c o m p o n e n ts t o th e s e v a r i o u s t r a n s a c t io n s t h a t h a v e o c c u r r e d , t h e y ’ v e
a ls o o c c u r r e d in a v e r y s h o r t p e r io d o f t i m e , in o r d e r to o r c h e s tr a te
s o m e t h i n g l ik e th is s u b s t a n t i a l p l a n n i n g n e e d s t o h a v e o c c u r r e d .

We

ju s t h a v e t o l o o k a t t h e C lu b L o a n a s y o u ’v e i n d i c a t e d , s i g n e d o n t h e
2 3 r d o f N o v e m b e r, th e fi r s t d r a w w a s o n th e 1 s t o f D e c e m b e r, it w a s
h e d g e d o n t h e – t h e h e d g e a p p r o v a l i n o t h e r w o r d s t h e a p p r o v a l f o r th e
h e d g e w a s o n t h e 3 r d o f D e c e m b e r a n d i t w a s e x e c u t e d o n th e 4 t h o f
D e c e m b e r, s o i n o r d e r t o d o a ll o f t h a t i t w o u ld n o t h a v e t a k e n t h o s e
c o u p l e o f d a y s , i t w o u l d h a v e b e e n p r e - p la n n e d a n d . . .( in t e r v e n ti o n )
A D V PA U L J O S E P H P R E TO R I U S S C : B y p r e - p l a n n e d y o u m e a n b e f o r e
20

t h e 2 3 r d o f N o v e m b e r s i g n a t u r e t o th e fl o a t in g i n te r e s t r a t e l o a n ?
D R J O N AT H A N Z O R A H B L O O M : Ye s C h a ir, a n d a s a c o n s e q u e n c e o f
t h a t i t r e s u l t e d i n s i g n i fi c a n t . .. ( i n te r v e n ti o n )
C H A I R P E R S O N : I’ m s o r r y, b e fo r e y o u d e a l w i t h th e c o n s e q u e n c e w h a t
w o u ld y o u s a y w o u l d b e t h e m i n i m u m p e r i o d t h a t w o u l d h a v e b e e n
t a k e n b y t h e p r e p a r a t io n , a r e y o u t a l k i n g a b o u t a m o n t h , a r e y o u t a l k i n g

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05 JUNE 2019 – DAY 106
a b o u t a w e e k , t w o w e e k s , th r e e m o n t h s b e f o r e t h a t d a t e ?
D R J O N AT H A N Z O R A H B L O O M : C h a ir it w o u ld h a v e t a k e n a c o u p l e o f
w e e k s , a s I s a id i t ’s n o t o n l y, i t ’s e a s y t o g e t t h e in f o r m a ti o n fr o m t h e
m a r k e t b u t t h e n y o u h a v e i n te r n a l p r o c e s s e s a n d Tr a n s n e t ’s i n t e r n a l
processes would have resulted – they would have had to check the
i m p a c t o n t h e r is k m a n a g e m e n t o r t h e f i n a n c e r i s k m a n a g e m e n t p o l ic y,
they

w o u l d h a v e h a d to u n d e r s t a n d w h a t th e i m p a c t t h a t – i t w o u ld

h a v e h a d o n th e m ix o f fl o a t in g to fi x e d r a t e s , d o e s i t s ti ll r e m a i n w i th in
t h e – w i t h i n th a t s tr u c t u r e , a ll o f t h o s e ty p e s o f c a l c u l a ti o n s a n d
10

a s s e s s m e n t w o u l d h a v e b e e n r e q u i r e d p r io r t o t h i s , t h e n th e y w o u l d
h a v e s ti ll h a d t o o b ta i n a p p r o v a l s to m o v e i n t o th e s p a c e o f p r o v i d i n g
o r e x e c u t in g t h e tr a n s a c ti o n s .
A D V PA U L J O S E P H P R E TO R I U S S C : Th e n o f c o u r s e t h e y – I ’ m s o r r y
C h a ir.
CHAIRPERSON:

O k a y y o u w e r e g o i n g t o c o n s e q u e n c e , I i n te r r u p t e d

him when he was going to consequence, I don’t want him to forget
w h a t e v e r p o in t h e w a n t e d t o m a k e .
D R J O N AT H A N Z O R A H B L O O M : N o C h a ir I t h in k . . .( in t e r v e n ti o n )
A D V PA U L J O S E P H P R E TO R I U S S C :
20

S o r r y, m a y I j u s t a s k a r e l a t e d

q u e s t io n t o y o u r q u e s t io n C h a ir.
C H A I R P E R S O N : Ye s , t h a t ’s f in e , y e s .
A D V PA U L J O S E P H P R E TO R I U S S C : O f c o u r s e w h e n a l l t h a t i s d o n e
y o u a r e r e a d y t o b e g i n th e n e g o ti a ti o n s w i t h t h e c o u n t e r p a r ty.
D R J O N AT H A N Z O R A H B L O O M :

Th a t ’s c o r r e c t C h a ir, o n c e y o u h a v e

d o n e a ll y o u r h o m e w o r k th e n y o u w o u ld e n t e r i n t o t h o s e d is c u s s i o n s

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05 JUNE 2019 – DAY 106
a n d i t w o u l d d e p e n d o n th e a p p e t i te o f t h e c o u n t e r p a r ty.

I t mi g h t b e

t h a t t h e c o u n t e r p a r ty d o e s n ’t – i s n o t i n te r e s t e d , i n o t h e r w o r d s i t
d o e s n ’t w o r k , th e y d o n ’ t – t h e y a r e n o t a m e n a b l e to t h e . . .( i n t e r v e n t i o n )
CHAIRPERSON: They need persuasion?
D R J O N AT H A N Z O R A H B L O O M : T h e y m i g h t n e e d p e r s u a s i o n b u t t h e n
t h a t m e a n s t h a t y o u h a v e t o g o a n d fi n d a n o th e r c o u n t e r p a r ty.
C H A I R P E R S O N : Ye s .
D R J O N AT H A N Z O R A H B L O O M :

A n d s o m e b o d y th a t ’s a c tu a lly

p r e p a r e d t o e n te r i n t o th e s e n e g o t i a t i o n s s o i t ’s n o t th a t y o u g o t o t h e
10

fir s t o n e f o r in s t a n c e a n d y o u o b ta i n s u c c e s s , i t d e p e n d s o n w h o y o u
w a n t t o d e a l w it h a n d a s I i n d ic a te d in t h e e v i d e n c e C h a ir t h a t ’s th e r e
a ls o Tr a n s n e t h a v e a lis t o f c o u n t e r p a r t i e s , s o th e y m i g h t g o t o a fe w o f
t h e m a n d s a y t h is is t h e ty p e o f tr a n s a c ti o n w e w a n t t o d o s o l e t ’s s t a r t
t h e d i s c u s s io n .
A D V PA U L J O S E P H P R E TO R I U S S C : B u t e v e n i f y o u s u c c e e d w it h t h e
fir s t c o u n te r p a r ty it ’s s t il l , a s I u n d e r s t a n d y o u r e v i d e n c e , a v e r y
c o m p le x d e ta il e d n e g o t ia t io n t h a t m u s t t a k e p la c e .
DR

J O N AT H A N

ZORAH

BLOOM:

Ye s

C h a ir

th e r e ’s

d e f in i te ly

n e g o ti a ti o n .
20

A D V PA U L J O S E P H P R E TO R I U S S C : I n o r d e r t o r e a c h a n a g r e e m e n t
w i t h t h e p a r ty w i t h c o u n t e r - v e il in g i n t e r e s t s .
D R J O N AT H A N Z O R A H B L O O M : T h a t ’s c o r r e c t .
A D V PA U L J O S E P H P R E TO R I U S S C : S o r r y I i n t e r r u p te d y o u , y o u w e r e
about to deal with consequences.
D R J O N ATH A N Z O R A H B L O O M : Ye s , I m e a n i n te r m s o f t h e – h o w th e

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05 JUNE 2019 – DAY 106
tr a n s a c ti o n s

were

executed,

in

te r m s

of

th e

nature

of

these

tr a n s a c ti o n s , t h e s c o p e , i n t e r m s o f s iz e , t h e a m o u n t s w e ’ v e b e e n
d is c u s s in g ,
in d i c a t e d

e x c e s s iv e
p r e v i o u s ly

fees,
C h a ir

excessive
w e ’r e

c o s ts ,

t a l k in g

and

because

about

th r e e

as

I

s p e c i fi c

tr a n s a c ti o n s , 4 . 5 , 7 . 5 a n d 11 .3 . I t a p p e a r e d t o in d ic a t e a tr e n d t h a t ’s
a s m u c h a s I c a n s a y b e c a u s e if t h e r e w e r e h u r d le s a t t h e f ir s t
tr a n s a c ti o n , i n o th e r w o r d s t h e fi r s t 4 .5 o r t h e 4 .5 i t w o u l d h a v e b e e n
d i ff ic u l t to p r o c e e d to t h e 7 . 5 s w a p a n d b e c a u s e a s I i n d i c a t e d i t
a p p e a r e d t o g o t h r o u g h s m o o t h ly, t h e r e w a s a n o p p o r t u n i ty t o t h e n u s e
10

t h e T S D B F i t a p p e a r s a s a c o u n t e r p a r t y t o fu r t h e r a n o th e r 11 . 3 o f
fl o a ti n g t h e f ix e d d e b t .
CHAIRPERSON: Thank you.
A D V PA U L J O S E P H P R E TO R I U S S C :

T h a n k y o u D r B lo o m .

As the

C h a ir r e q u e s te d a n d d ir e c t e d w e w o u l d b e g r a t e f u l i f y o u w o u l d p r e p a r e
a

d e t a il e d

report

in

r e l a ti o n

to

your

evidence

w it h

s u p p o r t in g

d o c u m e n ts i n t h e f o r m o f a n e x p e r t a ffi d a v i t, I tr u s t y o u a r e w ill i n g to
do so?
D R J O N AT H A N Z O R A H B L O O M : I a m C h a ir.
A D V PA U L J O S E P H P R E TO R I U S S C : Th a n k y o u C h a ir.
20

D R J O N AT H A N Z O R A H B L O O M : T h a n k y o u v e r y m u c h D r B l o o m , w e
a p p r e c ia t e y o u r h a v i n g c o m e t o s h a r e y o u r e x p e r ti s e w i th u s .

I have

tr i e d to le a r n .
D R J O N AT H A N Z O R A H B L O O M : Yo u h a v e C h a ir.
CHAIRPERSON:

Th a n k y o u v e r y m u c h a n d I tr u s t t h a t w h e n t h e

r e m a in in g p a r ts o f t h e w o r k th a t s t il l n e e d s t o b e d o n e h a s b e e n d o n e

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05 JUNE 2019 – DAY 106
a r r a n g e m e n ts w il l b e m a d e f o r th a t t o b e s h a r e d w i th th e C o m m i s s io n
a s w e ll .
D R J O N AT H A N Z O R A H B L O O M : C o r r e c t C h a ir, t h a n k y o u .
CHAIRPERSON: But thank you very much and you are excused.
D R J O N AT H A N Z O R A H B L O O M : It is m y p l e a s u r e t h a n k y o u C h a ir.
CHAIRPERSON:

To m o r r o w h o w m a n y w i t n e s s e s h a v e w e g o t , d o y o u

know?
A D V PA U L J O S E P H P R E TO R I U S S C : I u n d e r s ta n d o n e w i tn e s s C h a ir.
C H A I R P E R S O N : W h o w o u ld t a k e th e w h o l e d a y ? Yo u d o n ’ t k n o w ?
10

A D V PA U L J O S E P H P R E TO R I U S S C : I’ m r e l u c t a n t t o fo r e c a s t w i t h o u t
d o i n g m y h o m e w o r k C h a ir.
C H A I R P E R S O N : Yo u n e e d t o d o y o u r h o m e w o r k f ir s t .
A D V PA U L J O S E P H P R E TO R I U S S C : B u t I u n d e r s ta n d f o r t h e b u lk o f
t h e d a y.
C H A I R P E R S O N : Ye s , y e s . O k a y n o t h e n p r o b a b ly w e s h o u l d ju s t s t a r t
a t t e n o ’c l o c k .
A D V PA U L J O S E P H P R E TO R I U S S C : A s y o u p le a s e C h a ir.
CHAIRPERSON:

W e w i ll a d j o u r n t h e p r o c e e d in g s f o r t h e d a y a n d

t o m o r r o w w e w il l s t a r t a t te n o ’c l o c k . W e a d j o u r n .
20

I N Q U I R Y A D J O U R N S TO 6 J U N E 2 0 1 9

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