Ghosts of Safaricom IPO refunds haunt Citibank 16 years later

Safaricom's IPO is still the biggest IPO at the Nairobi Securities Exchange (NSE). [iStockphoto]

Citibank may be forced to reveal information on the whereabouts of some Sh116.5 million from Suntra Investment Bank for the purchase of Safaricom's initial public offering (IPO) shares in 2008 on behalf of one of its clients that received neither an allocation nor a refund.

High Court judge Mugure Thande has agreed with the Commission on Administrative Justice (CAJ) that Suntra deserves to know if the money was received and used and if not, how it was spent.

"The orders of the CAJ are not in vain and are enforceable as orders of this court on application," said Justice Thande, adding that Citibank never appealed or contested the CAJ's verdict.

She continued: "Citibank was obligated to comply with the said decision and orders. Having failed to do so, Citibank is in violation of the provisions of the Access to Information Act of Suntra's right to access to information."

The case filed by Suntra to enforce the decree against Citibank to supply the requested information may set a precedent and open the floodgates for many stockbrokers who may have fought, won, lost and even abandoned attempts to trace money that was supposed to be refunded after the IPO, but whose amounts, ownership and even location remains hazy to date.

Citibank has expressed its intention to appeal the High Court decision. But how did it get there?

When Safaricom went public in 2008, many players in Kenya's capital markets were jubilant.

Here was an opportunity to own a piece of a firm that had hitherto been the preserve of the government.

It was to be the crowning moment of the move to liberalise the Kenyan economy that had begun at the dawn of the new millennium.

The IPO did not disappoint. The firms that led in overseeing the transaction made a killing as book runners, authorised selling agents, transaction advisors, receiving banks and allocation processing agents.

Investors too have consistently received dividends and while they had to wait to see growth in the value of the share price, it recently hit a high of Sh43 from the Sh5 they bought it at during the IPO.

Post-IPO, however, was a not-so-happy period for several investors and players. To date, some 16 years later, some of them are still reeling from the aftermath of what is still the biggest IPO at the Nairobi Securities Exchange (NSE).

Among them were investors who were not so lucky, having put in money but at the end of the process were not allocated any shares and did not get their money back, at least not immediately.

Documents seen by The Standard indicate that one such case was that of Ugandan tycoon Dr Sudhir Ruparelia, who had applied for Sh116.5 million worth of Safaricom shares during the IPO.

Due to an apparent hitch in the technical application process, his application was not allocated any shares.

An immediate refund after the IPO was also not forthcoming when other investors got their cash back.

He would later get his money back but without compensation for the missed opportunity that was not due to his fault. He and many others bore the brunt of this missed opportunity.

But perhaps it is the stockbrokers who bore the brunt of the thorny side of the IPO. This has been the case at Suntra Investment Bank, which as one of the authorised selling agents for the Safaricom IPO, had received funds from KCB Bank to buy shares on behalf of Dr Ruparelia. It is a transaction that has haunted Suntra since. The stockbroker has faced many wars, losing some and winning some. Suntra was ordered by the court in 2014 to refund KCB Bank the money that was meant to buy Safaricom shares for Dr Ruparelia.

The firm paid the Sh116.5 million, which it said seriously dented its finances, but to date protests that it had made an application to Citibank for Dr Ruparelia's shares and made payments, but this was never processed.

Suntra has been fighting with Citibank - which was the lead receiving bank for IPO - over the matter since 2008.

The bank has argued that it never received the money, while Suntra has countered this, saying that it deposited the funds with Citibank in a batch that also included seven other investors, who were all allotted shares and received refunds following the oversubscription.

The issue first came to light in 2008 but Suntra recently resuscitated it, citing new evidence showing it deposited the money with Citibank.

"Our assertion on this batch was and still is that you (Citibank) debited our account with the batch total amount of Sh418.8 million and that this amount formed part of all the money we remitted to you during the IPO period. This amount included the value of Sh116.5 million relating to 23.3 million shares applied for by one Dr Sudhir Ruparelia as per application his number 1655631, which was missing," said Suntra in a letter to Citibank on October 29, 2019.

"All the applicants on that batch, except Dr Ruparelia, were allotted shares, and they also received refunds. Dr Ruparelia got neither shares nor a refund from Citibank. Suntra subsequently refunded Dr Ruparelia the entire amount of Sh116.5 million, but Citibank has not to-date reimbursed Suntra that sum."

During the IPO, Suntra was one of the Authorised Selling Agents (ASAs) alongside other stock brokers. Citibank was both a Receiving Bank (RB) and an Application Processing Agent (APA). Other than Citibank, EquityBank, National Bank of Kenya and Postbank, the rest of the commercial banks played no direct role in the IPO.

Dr Ruparelia was a client of KCB Bank, which provided shares and custodial services to its clients. Since it was not directly involved in the IPO, it entered into a contract with Suntra to have its Safaricom IPO applications for its clients processed through Suntra.

Against this agreement, KCB Bank paid Sh418 million to Suntra, with which the investment bank was to make an application for 83.76 million Safaricom shares for eight of KCB Bank's customers. The applications included that of Dr Ruparelia, whose Sh116.5 million was to get him 23.3 million shares in the IPO. Following Suntra's new demands in October 2019, Citibank responded two weeks later, noting that Ruparelia's application was missing and that this could have been in the possession of Suntra.

"Specific to this request, and in order to close the matter with yourselves, please be advised... schedule No 6065 in which one Sudhir Ruparelia was listed as an applicant was delivered to Citibank N.A Nairobi branch on May 8, 2008. It was noted that the actual application was missing on the acknowledgement. The acknowledgement for this schedule indicating the application was missing, we believe, should be in the possession of Suntra Investments Ltd," said Citibank in a letter to Suntra on November 11, 2019.

Suntra protested the response, noting that the seven other applicants who were in the same batch as Dr Ruparelia were allocated shares and obtained refunds. The firm added that it had not presented the application of the eight investors as individuals to Citibank but as a group.

"It is instructive to note that there were no individual cheques listed against any of the eight (8) applications on this batch and that the payment for the batch total of Sh418,800,000 was therefore made later through the Global Payment Service (GPS) then in force upon receipt of the several invoices Citibank sent to Suntra for topping up," said Suntra. The matter came up in 2008 shortly after the conclusion of the IPO, according to correspondence between Suntra and Citibank.

On July 3, 2008, John Maweu, an official at Suntra, queried the case for Dr Ruparelia through email to the bank.

Citibank responded on July 5, 2008, saying Dr Ruparelia's application form was not delivered to Citibank in the said batch. As there was no application, Citibank said at the time, it followed then that no shares were allotted.

Mr Maweu again reached out to Citibank seeking further clarification on July 18, 2008, and Citibank responded on July 22, 2008, noting that the application was neither uploaded nor delivered manually.

Following the conclusion of the IPO, Suntra refunded KCB Bank Sh92 million with expectations that it would get the same from Citibank. It also expected that the investor would be allotted shares worth Sh24.5 million.

This, however, did not happen and in 2012, KCB filed a suit against Suntra demanding that it pay the balance of Sh24.5 million. KCB Bank had refunded Dr Ruparelia the entire Sh116.5 million.

In 2014, the high court ruled that Suntra should pay the bank Sh24.5 million.

"Suntra refunded Ruparelia Sh92,077,800, and the balance after the court case had been determined. The amount of Sh116,500,000 was a very huge figure, which left a very big hole in Suntra's cash flow and liquidity," said the stockbroker.

Following the settlement in 2014, the matter went quiet, but Suntra reopened it in 2019 after finding details in a subsequent audit that it says showed that it had fully made an application, which had also been received by Citibank.

"The Ruparelia matter has been revisited after we stumbled upon a copy of the duly processed Batch Control Schedule number 6065 in Suntra's lawyers' file... on further scrutiny of the document and counterchecking with scanned images of Safaricom IPO applications and batch forms received from Citibank, it dawned on us that Suntra had been debited with the full value of the batch," said Suntra in subsequent correspondence with Citibank.

Suntra claimed to have unearthed more evidence in the course of investigating what happened to Dr Ruparelia's application. It is now seeking Sh20.36 million from Citibank, which it said was an overpayment made to the bank and a refund of Sh80,000 for Njenga Andrew Machua regarding the 2008 Safaricom IPO.

"The Ruparelia affair has led us to the serendipitous discovery of yet another BCS, number 3300, with a missing Safaricom IPO application form, number 8169298, for one Njenga Andrew Machua for 16,000 shares worth 80,000," said Suntra.

"This batch was processed in exactly the same manner as BCS number 6065 (which contained the application for Ruparelia and seven other investors). Although Suntra's GPS (Global Payments System) Account was debited with the full batch total of Sh913,000, neither shares were allotted to Machua nor any refund made to Suntra which should now be made, that is Sh80,000."

Following the unearthing of what Suntra said is evidence that the application had been received by Citibank, senior officials from the two firms met to try to get an amicable solution to the matter.

In an October 7, 2019 meeting, Suntra officials pressed Citibank officials for a refund of the money it had to pay Dr Ruparelia.

Suntra also requested Citibank to give it access to a ledger that Citibank operated and maintained for each stockbroker during the Safaricom IPO referred to as the Global Payments System (GPS). Suntra had hoped the ledger would show that it made the application and deposited the money.

Citibank officials disputed the documents that Suntra provided. It also said it did not have the ledger and instead said this was maintained by the government.

The bank further rejected the talks between the two organisations and instead told Suntra that any matters arising from the Safaricom IPO should be addressed within the regulatory framework.

This included the involvement of all players, including the Capital Markets Authority (CMA), the National Treasury and the Privatisation Commission.

It further told Suntra that the burden of proof was on them and that the bank had complied with the demands of the stockbroker.

"The account statements of the Global Payment System (GPS) Ledger Accounts cannot be provided as these were Government of Kenya Safaricom IPO Accounts and as such any requests for statements would have to come from the Government, which was Citibank's client in respect to the IPO," said Citibank in a letter to Suntra on December 19, 2019.

"Citibank has provided as much information as possible with regard to the queries. Suntra, being the claimant, should show evidence of payment and applications having been made with respect to the queries, independently of Citibank's records."

"Despite our previous responses, which have been repeated over time, Suntra continues to claim for refunds without showing any iota of evidence to the effect that they indeed applied for the shares and that payment was made for the applications."

Unsatisfied, Suntra requested the CAJ - also referred to the Office of the Ombudsman - in 2021 asking the Commission to compel Citibank to grant Suntra access to some information regarding the Safaricom IPO. Suntra wanted access to the GPS ledger, specifically the transaction relating to the Sh116.5 million that Suntra had made on behalf of Dr Ruparelia.

The Ombudsman ordered Citibank to avail the information, noting that "the requested information was public information... (and) the right of access to information is absolute unless limited by Section six of the Access to Information Act."

Specifically, the Ombudsman ordered "that the chief executive office, Citi Bank NA Kenya and East Africa Cluster do facilitate access to information and recorded held relating to the request for information made by Suntra Investment through their letters dates October 29, 2019 and December 6, 2019," said the Ombudsman in its direction in the matter on January 24, 2022.

Suntra would in May 2022 make an application to the High Court where it sought an order to make the order issued by the Ombudsman a decree of the High Court. The court issued orders on January 26 this year giving Suntra the go ahead to enforce the orders of the Ombudsman "as a decree of this honourable court".