Global Credit Misled by Failed First Strut Over Ratings

First Strut (Pty) Ltd., which may become the first South African company to default on a bond, misled Global Credit Ratings Co., which assessed the engineering and manufacturing company’s debt, the ratings company said.

First Strut “wasn’t completely honest with us,” Eyal Shevel, head of corporate ratings at Johannesburg-based Global Credit, said in an interview yesterday, without giving more details. “We rely heavily on audited accounts. We rely on auditors doing their jobs.”

First Strut is being wound down after attempts to salvage the Johannesburg-based company failed. Lenders refused more funding and bondholders won a court order to gain control of assets for security, Leslie Matuson and John Louw, appointed to try and rescue the business, said in court papers filed July 16. Global Credit Ratings gave First Strut’s 925 million rand ($94 million) of secured three-year bonds an investment-grade BBB rating, higher than the company’s non-investment level.

Mark Shelley, who is listed as First Strut’s auditor in court documents filed by Matuson and Louw, couldn’t be reached for comment. Three calls to Indigo Chartered Accountants, where Shelley works according to the Independent Regulatory Board for Auditors, weren’t answered. There was no response to an e-mailed request for comment sent to the account supplied by the regulator for Shelley. Calls to phone numbers provided on First Strut’s website weren’t answered and e-mails didn’t receive responses.

First Strut was given clean audit reports with no qualifications, Shevel said.

Murder Link

First Strut’s liquidation came after the murder of Chairman Jeff Wiggill in June in Soweto, southwest of Johannesburg. Wiggill’s shooting may have been a contract killing, the Johannesburg-based Star newspaper reported last week, citing the bail application of a man arrested for his death. The company, which was founded more than 20 years ago, had 18 units supplying industries ranging from rail to mining and employed about 5,000 people, according to its website.

Wiggill picked up an employee on the night of the murder and then drove to Soweto where he was found shot dead the next morning, the Mail & Guardian reported today, citing surveillance cameras and evidence gathered from his Bentley.

Investors, including Investec Asset Management and Sanlam Ltd., bought First Strut’s notes through a specially-created company called Bacarac Trading 142 (Pty) Ltd., according to the court documents. The debt was secured through a general notarial bond over First Strut’s movable assets, such as plant equipment and the debtors’ book, Shevel said. Bacarac enforced the notarial bond on July 12, according to court papers.

Looming Loss

Banks and investment funds may lose at least 1.5 billion rand, according to Bloomberg’s calculations. Many lenders, including Africa’s largest, Standard Bank Group Ltd., have refused to disclose how much they loaned the company.

Cosira South Africa (Pty) Ltd., a subsidiary that First Strut bought for 425 million rand last year and which worked on Eskom Holdings SOC Ltd.’s Medupi and Kusile power plants, applied to be placed under business rescue proceedings a week before Wiggill’s death, according to an affidavit filed by First Strut Chief Executive Officer Andris Bertulis.

Wiggill, 54, was the main contact between the ratings company and First Strut, Shevel said. Global Credit Ratings didn’t get responses for requests for information from First Strut after Cosira was placed into liquidation, he said.

“I don’t know how they turned from a seemingly OK company to this,” Shevel said.

There was no immediate response to an e-mail seeking comment that was sent to an address for Bertulis listed on the website of one of First Strut’s units. Zeenath Kajee of Westrust (Pty) Ltd., who was appointed as provisional liquidator of First Strut, has declined to comment following repeated attempts from Bloomberg.

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