Vimal Shah, Nyagah break their silence on Sh240 billion Tatu City project

Tatu City site map

NAIROBI, KENYA: Local shareholders in the Sh240 billion Tatu City project have disclosed how they acquired a 50 per cent stake in the controversial real estate project, which has been rocked by a fierce court battle.

One of the key stakeholders in the venture, the Renaissance Group, alleged in the course of the protracted court battle that Kenyan shareholders represented by the families of Vimal Shah of Bidco Oil Refineries, former Central Bank Governor Nahashon Nyagah and Steve Mwagiru, a coffee farmer, had no stake in the investment.

The group has portrayed local shareholders as ‘leeches’ arguing that they have not contributed a single cent in the investment.

Business Beat has landed on a trove of files, email correspondence, minutes and documents that will give the public a rare peek into the intrigues behind the fierce boardroom war and the underhand dealings that have made what would have been Kenya’s biggest privately funded real estate project, a still birth.

Until now, foreign shareholders have reveled in portraying the Kenyan shareholders as holding no stake in the investment by presenting skewed evidence based on Form CR12, whose records are kept with the Registrar of Companies. The forms indicate that the locals own a share each, while two Mauritius-based entities own the bulk of shares by association with local firms.

The company records indicate that the foreign directors, represented by Hans Jochum Horn, Frances Holiday and Stephen Armstrong Jennings own no shares in their individual capacities.

 

Bulk of shares

This has been interpreted to mean that the latter group owns the bulk of the shares in the Mauritius-based entities, Cedar IV and CedarSoc Limited.

But in the court documents, the local shareholders have laid claim to a 50 per cent stake in the offshore companies that own the local entities.

It has emerged that even the so-called local shareholders are actually ‘foreign investors’ having invested their stake through a Mauritian holding company called Manhattan Coffee Investment Holdings (MCIH).

Despite these records, the Renaissance Group, has continued to portray itself as the only investor in the project.

Last month, Mr Jennings, who is the face behind Renaissance Group, was in the country and launched a scathing attack on Messrs Shah and Nyagah, even as he accused the Kenyan judiciary of being ‘corrupt and too slow’.

In their defence, the local shareholders argue that they hold their investment in Tatu City and Kofinaf through their Mauritius- based company, Manhattan Coffee Investment Holdings.

At least eight entities, among them companies and individuals, own different stakes in the Sh240nbillion project hidden beneath layers of companies registered in various tax havens, including Mauritius, Cyprus, and Bermuda.

Both the local investors and the Renaissance Group jointly invested in the nine expansive coffee estates in Ruiru and Thika areas then known as Socfinaf.

The investment was done in a two-stage approach where the two groups of investors first acquired the Tatu Estate, now home to the Tatu City project, through an offshore company, Cedar IV, which is registered in Mauritius.

Local shareholders reveal in their latest court filings that the investment was financed through a Sh2 billion ($ 21million) stake half of which was paid for by the Renaissance Group, while local investors paid the other half through an ‘advance deposit’ arrangement agreed and signed between both groups of investors.

Thereafter, the investors signed a one-year option agreement to purchase the shares of the off-shore entity that owned the rest of the Socfinaf land properties. Socfinaf then became Kofinaf Company Ltd.

Having failed to obtain local financing, the Kenyan and foreign investors engaged Renaissance Capital as the arranger to source for an off-shore lender at a substantial fee. In later years, they argued, the fee due would be translated into equity.

Eventually a consortium of lenders was secured for a Sh6.1billion ($62.5 million) loan, payable allegedly at 33-50 per cent interest rate.

The firms accepted this high interest rates at the time, when comparative market rates for dollar-denominated loans were between four to six per cent. 

Subsequently, Renaissance Partners Investment Limited (RPIL), another company in the Renaissance stable, was engaged as the facility agent.

According to court documents, CedarSoc Limited, the front largely controlled by Kenyan shareholders secured the Sh6.1billion loan which was used to buy Kofinaf Limited.

“The loan was secured by a charge over the shares and properties of Tatu City Limited through the agency of RPIL, a company under the control of Stephen Jennings, Frances Holiday, Hans Jochum Horn and Frank Mosier,” the court documents read in part.

 

Loan repaid

The Kenyan shareholders argue that the loan has since been fully repaid after the sale of five parcels of land worth more than Sh7.3billion ($ 75 million).

However, Jennings and his team have maintained that a further Sh9.4billion ($96 million) remains outstanding.

Questions raised by directors representing the Kenyan shareholders in the opaque arrangement, where the off-shore loan facility is solely controlled by the Renaissance Group of investors, are the basis of the latest court battle.

The court has made three rulings on the issue, the latest one last week ordering for an in-depth audit of all the financial aspects of the companies by PricewaterhouseCoopers.

It has emerged that the suits in court reflect a situation more serious than had been previously thought.

The incessant fights have now made it almost impossible for the feuding shareholders to work together irrespective of the court outcome.

The local companies, Tatu City and Kofinaf, together with the representatives of the local shareholders have claimed in court that the foreign investors plan to sell off the entire land portfolio and exit in what will disenfranchise the land buyers who were promised infrastructure as part of the deal.

It is understood that offers are being made at the moment to sell off Mtaro, Mchana, and Oakland coffee estates.

The Kenyan directors are apprehensive that such an eventuality would be catastrophic as the land buyers would end up suing them after the foreigners had long disappeared.

The project has never known peace since inception. Shareholders started feuding just days before it was launched in the country in October 2010.

The boardroom wars saw former President Mwai Kibaki keep off the launch after one of the local shareholders, Mr Mwagiru, claimed that he was being short changed.

This led to the first court battle in which Mwagiru teamed up with his mother, Rosemary Mwagiru, who also owned a share in the mega project. 

The Mwagiru’s had sought court orders to dissolve Tatu City.

But tables turned against Mwagiru after he was accused of forging documents indicating that he and his mother were the only bona fide directors of Tatu City.

Since then the directors have filed suits and counter suits seeking various court injunctions in what has seen the main case drag on for almost five years now.

In that period, there have been boardroom coups, some done via video teleconferencing, accusations and counter accusations. The chairman and managing directors have been sacked and rehired after court intervention, among other intrigues.

The Tatu City project has been completely embroiled in the court circus.

But it is a suit filed by the two other local directors seeking an audit of the loan by PricewaterhouseCoopers (PwC) that will make or break the case.

The audit is now the latest battle ground for the feuding shareholders.

In September 2014, when the disputants enjoyed a better relationship, they agreed to engage PwC to audit the controversial loan. At some point, Mr Jennings questioned the apparent reluctance of Nyagah and Shah to proceed with the audit firm as had been agreed in an earlier boardroom meeting.

But Jennings has now come out to object to the audit and raised several issues. The Jennings team is concerned that PwC has a conflict of interest and will not independently carry out the audit.

“PwC is presently the external auditor for Bidco Africa, a leading business conglomerate involved in the manufacture of edible oil, detergents, soaps, margarine and baking powder,” a lawyer representing the foreign shareholders said in his court submissions.

Shah is the CEO of Bidco Africa and this according to the foreign shareholders, brings to the fore the issue of a PwC conflict of interest.

The Bidco boss is also accused of not disclosing that PwC was an auditor at his firm when the board decision was being taken.

The foreign shareholders also pointed to another conflict of interest between PwC and Nyagah on grounds that the audit firm was also one of the external auditors for the Central Bank of Kenya during his tenure.

“The audit is critically important in unlocking the underlying issue in dispute, namely in what manner and who will govern the company which is presently valued at close to $1 billion,” the court papers read.

In his defence, Shah argued that he as an individual is a separate entity from Bidco, which has on its panel, all the other prominent auditors including the one suggested to replace PwC.

The judge rejected the conflict of interest allegations on grounds that they were not proved. The other issue in contention are the terms of reference of the audit. The foreign investors want the scope of the audit limited to just the determination of the total loan amounts secured by the company from inception to date, and the reconciliation on the payments therein.

 

Scope of audit

The foreign investors have opened a fresh battle front on the scope of the audit arguing in court papers that “for unknown reasons and in a clear attempt to overreach and extend the scope of the audit, PWC...adopted a fishing expedition that was not authorised or within the contemplation of the directors”.

But in a ruling that may give local shareholders a reprieve, the judge ruled that Shah and Nyagah are entitled to have an in-depth audit undertaken independently without interruption or control by the defendants.

“The crucial business of Tatu City Limited and Kofinaf Company Limited are at a standstill due to the dispute. It is therefore important that both sides to the dispute approach the said audit in good faith, so that the business of the two companies is not duly compromised,” Justice E. Ogola said in his ruling delivered on June 12, 2015.

“I do not consider the choice of auditor as a win or a loss for either party. The audit issue was an interim measure in the resolution of the dispute, and must be dispensed with as soon as possible,” Mr Ogola ruled.

The firm has 45 days to deliver the results of the audit. 

 

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