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.

The looming legal tussle is similar to the legal obstacles that Safaricom faced in the run up to its Sh50 billion Initial Public Offering last year.

A group of MPs had moved to court to block the listing until doubts over the mobile company’s ownership were cleared.

They also argued that the sale was being done in contravention of the Privatisation Act.

But High Court Judge Joseph Nyamu dismissed the application terming it politically inspired.

Last year, a court tussle almost stopped Stanbic Bank Kenya from merging with CFC Bank after 15 former Stanbic employees sued the bank for Sh1.1 billion.

The employees claimed that the bank had failed to pay their pension in full when they retired.

But the merger was later cleared.

In their application, Nationwide Finance shareholders also want Consolidated Bank barred from charging, transferring, leasing or alienating the Consolidated Bank house along Nairobi’s Koinange Street pending the hearing and determination of the petition.

Kiragu Holdings, Mumbu Holdings, KBKanne Investments, Tagaka Holdings, P.J Kiragu Mwangi, Alex Kibaki Muriithi, J.K Mbuu and Mary Waithera Gachui, who are listed as the litigants, say that their goal is to recover ownership of the building.

Mr Kenyatta, through a Kenya Gazette notice dated August 14, 2009, listed Consolidated Bank as one of the entities in Government divestiture programme for the current fiscal year.

But the investors reckon that the matter at stake is public interest and morality as they inter-alia relate to the proper exercise of State power in a capitalist economy, sanctity of private property and the value of the Constitution to investors.

Nationwide became a shareholder in Consolidated Bank after the Government merged the nine institutions in an elaborate scheme that commenced with the establishment of the Special Investment Committee (SIC) in 1996 by the then President Daniel arap Moi.

Other institutions that were forced into the union include Jimba Credit and Finance Corporation, Business Finance Company, Citizen Building Society, Estate Building Society, Estate Finance Company, Home Savings and Mortgages, Union Bank of Kenya, and Kenya Savings and Mortgages.

SIC’s justification was to salvage weak financial institutions that had been adversely affected by the banking crisis of the mid-1980s.

NFC, through its lawyer Kibe Mungai argues it was not among the banks that faced insolvency at the time.

Between 1986 and 1989, the Government ordered parastatals and Government agencies to withdraw deposits from the indigenous financial institutions, including NFC.

“The petitioners are apprehensive that the intended privatisation will prejudice them and unduly complicate the complex shareholding, which currently exclude the real owners,” says the application filed on October 22, 2009.

“The applicants contend that unless the Court stays the Gazette notice and restrain the privatisation commission from continuing with the sale, the applicants’ rights will be violated and the petition would be rendered nugatory”

Other firms listed for sale include the national fuel distributor Kenya Pipeline Company (KPC), giant milk processor, New Kenya Cooperative Creameries (New KCC), Kenya Meat Commission (KMC) and sections of the Kenya Ports Authority (KPA).

Treasury is also planning to divest part of its 70 per cent stake in the public power generator KenGen and its stake in sugar firms Chemelil, Nzoia, Sony, Miwani and Muhoroni.

The list also includes Karbarnet, Golf Hotel Kakamega and Kisumu’s Sunset Hotel, Mt Elgon Lodge, and Kenya Safari Lodge.

Others are three hotels under Kenya Tourism Development Corporation (KTDC): International Hotels, Kenya Hotels, and Mountain Lodge.