Investors move to block Consolidated Bank sale

Treasury’s plan to raise money for a growing list of emergencies through sale of Consolidated Bank of Kenya shares has run into trouble after a group of investors moved to court to block it.

Nationwide Finance, one of the financial institutions that the government pushed into a forced merger to form the bank in the wake of Kenya’s first baking crisis in the mid 1980s, has moved to court seeking to stop the sale on grounds that the institution’s ownership is in dispute.

Nine financial institutions deemed too weak to survive, including Nationwide Finance, were merged in 1986 to form Consolidated Bank.

Treasury wants to sell part of the 48.8 per cent stake it claims to own in the bank together with the Deposit Protection Fund, and had earmarked it for sale in the current financial year.

Nationwide Finance owners claim that they were forced to transfer ownership of their company under duress for Sh10 million and has been battling the government for its piece of the cake since 2007.

Finance minister Uhuru Kenyatta sparked fresh controversy over the banks ownership with an announcement in August that the Government wants to sell its shares in Consolidated Bank forcing some of the shareholders to renew their action through an application seeking to stop the sale.

The matter is fixed for hearing on December 1, 2009. Should the court grant the investors’ prayer, the ongoing preparations to sell Consolidated Bank could stall, throwing the Government’s privatisation plan into jeopardy.

That could also widen the budget gaps and leave Treasury in a tight financing situation in the second half of the current financial year.

Consolidated Bank is among the 26 state firms that Treasury plans to sell through a listing at the Nairobi Stock Exchange or to strategic equity partners.

Proceeds should go to plugging the Sh168 billion budget deficit this fiscal year.

Treasury hopes to raise at least Sh6 billion from privatisations by June next year.

Besides helping plug the budget deficit, Treasury says privatisations should bring on board investors with money to boost the institutions and management expertise to support growth.

Lack of injection of adequate funds into the firms coupled with political interference in the management of the firms has stunted their growth.

Nationwide Finance has enjoined the Privatisation Commission, Treasury, Consolidated Bank and the Attorney General in the case.

Mr Solomon Kitungu, Privatisation Commission’s chief executive officer declined to comment on the matter, saying the issue was already before court.