Category: Business

Home buyers risk losing millions of shillings paid to Suraya property Group after the High Court allowed Transnational Bank to auction a one-acre parcel of land on Kiambu Road that was to host the houses.

Justice David Majanja dismissed the application by 14 investors who sought to block Transnational Bank from selling the land over a Sh111.2 million.

The investors had paid Suraya a deposit to Suraya Group, who had promised to deliver apartments to the home buyers.

But Justice Majanja said they failed to provide sale agreements between them and the developer- Suraya property Group, to help the court determine the nature of the proprietary interests in the property.

The Judge further said the bank had charged the property and its interest supersedes any other interest including the rights of the investors.

“In the absence of these agreements, which form the basis of the contractual relationship, I cannot say the Plaintiffs have established a prima facie case with a probability of success in relation to the registered interest of Transnational Bank,” the Judge said.

The 14 investors rushed to court after the bank advertised for sale the property measuring 0.913 acres on Kiambu Road, near Northern by-pass. They had entered a deal with Muga Developers and Suraya for purchase of apartments.

The developer intended to build a multi-storeyed block of apartments including 84 two-bedroomed and 68 three-bedroomed apartments. The construction also included two basement parking.

The investors sought to stop the bank from selling the property to recover a loan of Sh111 million. They also wanted the bank to provide them with reconciled accounts relating to the development, which was known as Classix at Fourways ltd.

The investors said they have a beneficial interest in the property after entering into off plan purchase agreements for the apartments with one ordinary share in the management company of the Development.-BD.

The Competition Authority of Kenya (CAK) is investigating the bank accounts of supermarket chain Tuskys after the retailer defaulted on suppliers to the tune of Sh1.2 billion.

Tusker Mattresses Limited has been ordered to furnish the regulator with its monthly bank statements for the past one year for all bank accounts relating to its retail business by Friday this week.

Documents seen by the Business Daily show that this is part of a wide-ranging investigation into one of the country’s largest supermarket operators, which has lost the trust of the regulator.

The CAK started looking into Tuskys operations in April after reports emerged that it was not paying suppliers on time as provided for in their respective contracts.

For weeks now, shoppers have complained of missing essential goods on the retailer’s shelves in a signal that some suppliers are severing ties with the company.

The watchdog on Monday ordered Tuskys to settle the Sh1.29 billion by between July 1 and July 16.

Tuskys’ executives and the retail chain risk a jail term of five years or a fine of up to Sh10 million or both if they fail to settle the debt or furnish CAK with bank statements, audited accounts, list of suppliers and their contracts.

“Any person who fails to comply with the order of the authority commits an offence,” said CAK in a letter to the retailer. “This matter remains under investigations and further orders will be issued as and when merited”.

The retailer on May 15, told the regulator that it owed suppliers a total of Sh884.3 million. It subsequently wrote to CAK on June 12, revising down the outstanding sums without proof of payments and concurrency by suppliers.

However, the regulator, established through independent investigations that the retailer had failed to disclose another Sh400.9 million owed to suppliers.

“With this background and our investigations, the Authority has established that Tusker Mattresses Limited is experiencing incidences of abuse of buyer power in the form of delays in payment of suppliers contrary to sections 24A(1) and 24A(5)(a) of the Act,” CAK wrote in a letter to the retailer seen by the Business Daily.

Those sections of the law say a company will be guilty if it delays payment of suppliers without justifiable reason in breach of agreed terms of payment.

For such abuse, the culprit faces imprisonment for a term not exceeding five years or to a fine not exceeding ten million shillings or to both.

CAK has ordered Tuskys to settle its outstanding debt in a specified schedule, failure to which the penalties will be imposed.

“The sum of Sh396.2 million owed to suppliers of fast-moving consumer goods (FMCG) within 14 days from June 16, 2020,” the regulator said.

“The sum of Sh499.1 million owed to non-FMCG suppliers within 30 days from June 16, 2020.”

Another Sh400.9 million supplier debt, which the regulator uncovered on its own, is to be settled in full within 14 days from yesterday.

While Tuskys has blamed its woes on the Covid-19 pandemic, a substantial part of the debt predates the disease, which was first confirmed in the country on March 12.

Tuskys becomes the first major retailer to face the scrutiny of CAK’s Buyer Power Department, which was created after Nakumatt Holdings collapsed with Sh30 billion owed to suppliers. Nakumatt owes more than Sh30 billion: Sh18 billion to suppliers, Sh4 billion to commercial paper holders and the rest to banks.

Poor management and rapid expansion hurt the chain, opening the door for foreign chains such as France’s Carrefour and South Africa’s Shoprite to enter the market.

Buyer power means the ability of a purchaser to extract more favourable terms from a supplier on whom it can also impose significant opportunity costs by, for example, delaying payments.

Farmers and manufacturers of various goods have found themselves in a catch-22 situation where they have to tolerate onerous terms set by retailers or walk away and lose access to the key distribution networks.

Supermarkets, for instance, have become the favourite shopping destination for the middle class and have nearly wiped out corner shops in the major towns.

Most suppliers stuck with Nakumatt and Uchumi Supermarket even as they accumulated the massive debt, most of which could not be recovered from the retailers’ negligible assets.

For Tuskys, the regulatory action has made urgent the need to raise funds from lenders or shareholders to maintain its footing in the highly competitive supermarket business where it is facing off with better-funded rivals.

One of Tuskys’ top rival, Naivas, recently moved to raise more than Sh1.5 billion from the International Finance Corporation (IFC) and other investors.

Carrefour, a franchise owned by Dubai-based conglomerate Majid Al Futtaim, says it has access to funding to the tune of $3.4 billion (Sh362 billion).

Besides bank accounts, the investigations into Tuskys’ affairs will include a review of its audited financial statements and those of its subsidiaries for the last three years. The company has also been asked to provide the regulator with its management accounts for the last six months.-Business Daily.

Saudi billionaire Prince Al-Waleed bin Talal has sold his stake in the troubled Fairmont The Norfolk and Fairmont Mara Safari Club to a Nepalese tycoon for Sh2.8 billion. The mega deal was closed ahead of the global spread of Covid-19.

The two hotels came to the limelight last week after the management announced it was firing all the employees, citing the effects of the Coronavirus pandemic.

Thursday, however, it issued a notice in which it announced the withdrawal of the earlier memo. The withdraw came after the Office of the Attorney-General questioned the legality of the firing.

Now, it has emerged that Prince Al-Waleed, through his investment vehicle, Kingdom Holding, sold his stake to the Chaudhary Group (CG). The prince has been reorganising his portfolio months after being detained in Saudi Arabia’s sweeping crackdown on corruption.

A transaction advisor who participated in the Fairmont deal and who spoke to the Business Daily on condition of anonymity said the Norfolk and Mara Safari Club cost the Nepalese tycoon Sh2.8 billion.

“Prince Alwaleed is no longer in the game after surrendering the ownership of remaining hotel business in Kenya and his investment group is focusing somewhere else,” said the advisor.

“The transaction has been closed and now the Nepalese owners are embarking on a full 100 percent renovation that will go for a whole one year.”

Chaudhary Group, which is associated with Binod Chaudhary, a billionaire Nepalese lawmaker, has already listed the two hotels among its string of high-end hospitality investments spread in Asia and the Middle East.

It says the deal will give it an additional 170 guest rooms and suites, 51 luxury tents and about 10 food and beverage outlets.

The acquisition of the iconic Nairobi hotel and the Mara tented facility will be the second deal in the region for the Kathmandu-based multinational which also owns Le Relax Hotel in the Indian Ocean island nation of Seychelles.

Chaudhary Group also has investments in banking, education, energy, telecommunication and pharmaceuticals with operations in five continents. The Group Chairman and President, Binod, is estimated to be worth $1.4 billion (Sh148.5 billion), according to Nepalese media reports.

Kingdom Hotel Investments shelled out Sh6 billion in 2005 to acquire and upgrade the Lonrho properties – the last remnants of British aristocrat Tiny Rowland’s vast empire.

They included the Norfolk Hotel in Nairobi, the Mount Kenya Safari Club in Nanyuki, the Aberdare Country Club, the Ark and the Mara Safari Club.

The acquisition was hailed as one of the largest in East Africa at the time. But Prince Alweed has taken a strategic decision to divest from hotels, selling Four Seasons Damascus in Syria and Four Seasons Beirut in Lebanon.

The sales come two years after the prince, who is a grandson of the founder of Saudi Arabia, became one the high-ranking Saudi officials arrested in what authorities there said was an anti-corruption crackdown.

Now in his 60s, the flamboyant prince is a serial investor in top global luxury hotel chains. He has in the past 30 years built up a fortune worth $20.4 billion (about Sh2.1 trillion), according to Bloomberg.

Prince Al-Waleed also has major stakes in News Corp, Citigroup and Twitter. He co-owned the Four Seasons hotel chain along with American billionaire Bill Gates and is the owner of London’s landmark luxury hotel, The Savoy.

His other hotel investments include the George V in Paris and the Plaza in New York.

Kingdom Holdings had earlier ceded control of the 5-star Fairmont Mount Kenya Safari Club to elusive businessman, Humphrey Kariuki, who is currently fighting a Sh41 billion tax evasion suit.

CG Hospitality has embarked on major renovations and upgrades of the Norfolk hotel and Maasai Mara property, which was partly damaged by recent floods after the Mara River broke its banks.

The takeover of the Kenyan hotels has come at a time when the hospitality sector has been ravaged by the effects of restrictions to slow down the spread of Coronavirus.

The Nepalese group is also fighting an employee revolt after its workers declined an offer to remain on unpaid leave during the coronavirus period and demanded to be retained on 50 percent pay.

Last week, the hotel said it had fired all the workers and closed the two hotels indefinitely. Thursday, however, it rescinded the move after the Attorney-General’s office questioned the move.

The ban on all international flights imposed in mid-March to curb the spread of the coronavirus have delivered a big hit to the country’s tourism industry, with some hotels at the Coast reporting occupancy rates of well below two percent in April.

The dusk-to-dawn curfew and a ban on movement in and out of five counties worst hit by the coronavirus outbreak, including Mombasa and Nairobi, worsened the hoteliers business.

Most five-star hotels including Nairobi’s Tribe Hotel, Ole Sereni and DusitD2 have closed or suspended operation due to effects of coronavirus.

Kenya has reported 2,340 Covid-19 positive cases and 78 deaths.-Business Daily.

Cash-starved Kenyans redeemed Sh301 million from the Safaricom customer loyalty awards scheme, Bonga Points, to buy food and household items.

The Bonga For Good initiative, in which one point converts to 30 cents, was launched on April 3 to help customers purchase goods and services in the wake of the economic disruption brought by the Covid-19 global pandemic and local measures to slow down its spread in Kenya.

In the new Bonga For Good scheme, customers spent most of their entitlements on food, household purchases, solar equipment and paying bills for utilities like internet and pay-TV.

This came in a period when restrictions imposed to limit the spread of coronavirus disease have seen businesses cut down their activities on reduced consumers demand, triggering layoffs, unpaid leaves and pay cuts.

The reduced cash flow has shifted consumer spending and generated an appetite for non-monetary expenditures like the use of Bonga Points.

Redemption of the points, which saw one billion points used up, have helped Safaricom reduce its stock of the points that sit on its books as a liability. The temporary programme gave customers the option of spending their points beyond the traditional airtime, internet services and mobile phones.

In the year ended March 2019, the value of the Bonga Points stood at Sh3.8 billion.

Under the recent scheme, most of the points were redeemed at supermarket chains such as Naivas, Tuskys and Khetia.

The Bonga Points loyalty programme was introduced in January 2007 and allows customers to earn one point for every Sh10 spent on voice calls, short messages, data and M-Pesa services.

“This initiative is to empower Kenyans to use the savings they have been making by using Safaricom products over the years to meet their needs to pay for their essentials or donate to the most vulnerable in the society,” Safaricom CEO Peter Ndegwa said in an earlier statement.

The points are accounted for as a liability or deferred income in the telco’s books and are only recognised as revenue once they are redeemed by customers for airtime, SMS, merchandise or shopping. With the ongoing economic disruption due to the Covid-19 pandemic, more Kenyans are likely to continue tapping the Bonga Points scheme to cover for their depleting cash reserves. The impact of the coronavirus restrictions has hit low-income earners the hardest, especially those who relied on temporary jobs and those who operated small businesses.

The closure of hotels and restaurants, the ban on markets and restriction of movement in major towns has seen many workers lose their incomes and struggle to cope. Struggling companies have laid off casual workers, small businesses have closed while a large population that supported urban demand for menial jobs is staying at home.

Measures taken to combat the pandemic have seen 92 percent of Nairobi County’s low-income residents suffer reduced incomes, forcing them to cut back on essential purchases, including food.

A survey by Tifa Research has for the first time revealed the stark reality that the economic impact of the curfew, closure of businesses and travel restrictions have had on the capital’s most vulnerable populace.

Ninety two percent of respondents who reported reduced income comprise those who lost their jobs, indicating serious economic hardship should the crisis persist for long. It also includes those who have found themselves underemployed or entirely unemployable as a result of the restrictions.-Business Daily.

KCB audit job has been among the highest payers, with remuneration paid by the lender amounting to Sh55 million in the financial year ended December 2019.

Absa Kenya last year also dropped KPMG after two years of auditing its books, dealing it a blow of annual audit fees of between Sh32 million and Sh40 million.

KPMG’s credibility was put to question over work done for controversial Gupta family, which faced corruption investigation in South Africa. KPMG South Africa failed to raise alarms when businesses controlled by the Gupta family friends of President Jacob Zuma diverted the equivalent of $3.3 million of public money to pay for a family wedding and their auditing firm, documents show. They aided money laundering.

Absa Group, the parent firm of the Kenya unit, also dropped it.

Top banks’ audit jobs are the most lucrative and are usually shared among the Big Four auditors — PwC, Deloitte, EY and KPMG.

For instance, PwC made Sh54 million for auditing Safaricom in the year to March 2019 yet the telco’s profitability is nearly 2.5 times higher than that of KCB. It made Sh39.6 million for auditing East African Breweries.

KCB has spent Sh333.05 million on audit remuneration for the last nine years that KPMG has been its principal auditor.

Part of the payment has been going to PwC, Deloitte and Ernst & Young that have been auditing some of KCB’s subsidiaries in the region.

KCB board is set to recommend to shareholders to endorse PwC as new auditors in the virtual annual general meeting set for this Thursday.

“To appoint Messrs PwC, Certified Public Accountants, as the new Auditors of the Company in place of KPMG, Certified Public Accountants whose term expires at the end of this meeting,” reads AGM notice in part.

This will offer PwC a huge revenue boost given that it has historically been auditing National Bank of Kenya alone but will now extend to KCB.

KPMG is leaving at a time the acquisition of NBK by KCB saw audit fees jump from Sh45 million in 2018 to an all-time high of Sh55 million last year.

Kenya Revenue Authority (KRA) tax collections in April dropped by Sh20.31 billion, reflecting the subdued business environment amid the Covid-19 pandemic economic hardships.

Latest data from the Treasury indicates that tax collections fell to Sh120.1 billion in April from Sh140.41 billion in same month last year, representing a 14.46 percent drop.

This is a rare drop that reflects lower collections from businesses struggling with lower sales and workers plagued by stagnant pay in an environment where firms have been shedding jobs in response to the coronavirus pandemic.

The effects of tax cuts imposed in April to cushion workers from the effects of the disease will be reflected in May data.

Treasury Secretary Ukur Yatani expects the under-performance in revenue collection to deepen in May and June as effects of travel restrictions, ban on mass gathering and the dusk-to-dawn curfew imposed to curb the spread of coronavirus take a toll on the economy.

[Business Daily]

Manufacturers want the government to urgently intervene and oversee the payment of money owed to Tuskys supermarkets’ suppliers to avoid a full-blown debt crisis.

The suppliers are jittery over the debt impasse, especially following the collapse of Nakumatt and Uchumi supermarkets, which sank with Sh18 billion owed to them.

Their concerns follow an admission by Tuskys that it is facing constrained cash flow due to the impact of the coronavirus on its business.

This will mean delays and reductions in payments to suppliers, banks and landlords, chief executive officer Dan Githua said.

The retailer had renegotiated payment terms, but while offering reassurances that it planned to honour the payments, it revealed that it may not honour them at the agreed time.

The company has maintained that it is committed to protecting the interests of its suppliers.

But in a fresh twist to the dispute, manufacturers have now written to the Ministry of Industrialisation and Trade and the Competition Authority of Kenya (CAK) calling for speedy resolution of the debt impasse.

Kenya Association of Manufacturers (KAM) chief executive Phyllis Wakiaga said that while the lobby has held discussions with Tuskys management over delayed and late payments, the continuing standoff is likely to hurt the whole manufacturing sector and snowball into a bigger crisis.

Following the talks, Tuskys had promised to undertake various measures to pay for goods supplied, Ms Wakiaga said.

“However, manufacturers have informed us that their payments remain outstanding to date for goods supplied as early as this year and there has been low communication from yourselves on the measures indicated in your letter,” Ms Wakiaga said in the May 22 letter to Tuskys, which the Sunday Nation has seen.

“This situation is now causing apprehension within the manufacturing sector and which may lead to low supply of goods in the market in order to manage their risks,” she added.

In the letter, which is copied to Industrialisation and Trade Cabinet Secretary Betty Maina and CAK Director-General Wang’ombe Kariuki, the manufacturers want Tuskys to provide more detailed information on its proposed payment plans for manufacturers who supply to it, indicating the average payment periods and a detailed financial plan on its current financial measures.

“We further request … an urgent meeting with yourselves in the presence of the Ministry of Trade and Industry as well as the Competition Authority to address this matter with finality,” Ms Wakiaga wrote.

In his letter last month to Mr Kimani Rugendo, the chairman of the Association of Kenya Suppliers, Mr Githua, the Tuskys boss, blamed measures taken to control the spread of Covid-19 such as social distancing and reduced operating hours for lower traffic in its stores.

He added that the retailer had shut some branches and merged others in a bid to stem losses at individual stores.

“Despite these efforts, some supplier obligations may be deferred and therefore some of your members have been impacted. We have communicated individually to these suppliers that their payments will be delayed,” Mr Githua said.

Tuskys’ customers have reported stock-outs in sections of the retailer’s branches spread around the country.

In 2018, the competition watchdog established a Buyer Power Department to curb potential abuses by retailers, including unnecessary delays in settling supplier claims.

The creation of the unit was informed by the collapse of Nakumatt and Uchumi supermarkets that left billions of shillings of supplier debt unpaid.

In January, Nakumatt creditors voted to wind up the retail chain after a failed rescue attempt. The company had a network of more than 60 branches before a cash crunch forced it to shut more than a dozen stores in 2017, after it was unable to pay suppliers, landlords and other creditors.

Nakumatt owes more than Sh30 billion — Sh18 billion to suppliers, Sh4 billion to commercial paper holders and the rest to banks.

Poor management, rapid expansion and disasters at their stores were some of the reasons advanced for the retail giant’s fall.

Its demise opened the doors for foreign chains such as France’s Carrefour and South Africa’s Shoprite to enter the market. The foreign retailers have sought to cut the dominance of family-owned Naivas and Tuskys. Other top retailers are Quickmart and Chandarana.

Kenya enacted new regulations last year to compel retailers to pay suppliers within 90 days. Those who breach the rule risk a jail term of up to five years or a Sh10 million fine.-Business Daily.

The Capital Markets Authority (CMA) is locked in a fresh court battle over the KenolKobil insider trading case after the former head of one of Kenya’s biggest stockbrokers – who was banned over the breach – moved to overturn the punishment.

Andre DeSimone, who left his position as chief executive of Kestrel Capital in April last year after the insider trading allegations, has filed a suit with the Capital Markets Tribunal seeking to be cleared from the trading breach.

The CMA had established that Mr DeSimone had in October 2018 disclosed price-sensitive material relating to the impending takeover of KenolKobil by French multinational Rubis to two stockbroking agents, Aly-Khan Satchu and Kunal Bid, who were also punished for trading in the non-public information.

Mr DeSimone has now launched a legal fight against the CMA for banning him from holding a senior role in a listed firm or a brokerage for a year, arguing that the regulator had failed to establish that he profited from the leaked information.

He wants the tribunal to quash the ban, reverse the Sh2.5 million fine slapped on him for sharing the price sensitive information and offer him a just compensation on claims that evidence before the regulator does not meet the threshold for insider trading.

“The ad hoc committee erred in fact and in law in not finding that the appellant’s disclosure of information to his co-accused was given without regard to motivation, intent knowledge or expectations of gaining any material benefit,” says Mr DeSimone in court papers.

“The said decision of the ad hoc committee of the board of the Capital Markets Authority be set aside. The honourable Tribunal grants any other or further relief it deems fit or just.”

Mr DeSimone had admitted to the committee to having told Mr Satchu and Mr Bid of the Sh26 billion KenolKobil sale to Rubis, giving the two privileged information that they used to trade on the Nairobi Securities Exchange (NSE) listed stock days ahead of the transaction.

The duo then bought, advised their clients to buy or bought on their behalf about 59 million KenolKobil shares then worth about Sh1 billion in the week before the takeover information was made public

The markets regulator is this week expected to file its defense to the suit after it received Mr DeSimone’s petition on April 8.

While Mr DeSimone paid the Sh2.5 million fine and has weeks remaining to complete the one-year ban, he maintains that the insider trading allegations had put a dent to his 30-year investment banking career and rendered him jobless for life.

“While CMA may have viewed the one year regulatory ban as lenient, for a person working as a professional advisor in the financial service industry, being found culpable of insider trading is tantamount to a lifelong ban,” Mr DeSimone said in an affidavit to the CMA tribunal.

“I can never practically work again in the financial service industry, an industry which I worked since my career started in 1989. I have no other means or skills to support my family.”

The explosive insider trading trial before the CMA’s ad hoc committee revealed finer details of the KenolKobil insider trading scheme, the biggest ever to have hit Kenya’s capital markets.

Mr DeSimone described how he met Mr Satchu at Capital Club to discuss opening an account for his clients who brought in up to Sh1 billion ($10 million) for the deal.

He handed over the price sensitive information when he casually told Mr Satchu he was looking to close the KenolKobil deal, sharing specific details on the takeover share offer price of Sh23 a piece. This led Mr Satchu to broker a huge purchase of KenolKobil shares on the cheap from unsuspecting investors

The CMA last year seized Sh458 million gains that it said the insider trading suspects stood to earn from the KenolKobil deal.

Mr DeSimone, however, tried to downplay the nature of his relations with Satchu, saying they only met for coffee and lunch once or twice a year and at corporate events.

But CMA said that it had established communication between Mr Satchu and Mr DeSimone before the insider information was made public after it confiscated their phones and laptops on January 15.

The regulator reckoned that Mr DeSimone’s action after purchase of the Kenol shares was suspect.

CMA said that he deleted WhatsApp messages, call records and text messages from his seized BlackBerry mobile phone and edited Mr Satchu’s response to the regulator on the insider trading allegations.

The CMA tapped computer forensic firm, East African Data Handlers, to recover altered or deleted electronic data from e-mails, computer hard drives and WhatsApp.

The regulator’s unprecedented use of mobile forensic — electronic data gathering for legal evidence use that is often deployed in pursuit of terrorists and drug trafficking investigations — marked a turning point in the prosecution of white collar crimes.

Financial regulators in Kenya, including the Central Bank, have been stepping up efforts to stop the flow of money from suspicious transactions through the system as it seeks to establish Nairobi as an international financial hub.-Business Daily.