AccessKenya directors, Mr Jonathan Somen (right) and Mr David Somen. Access Kenya board queries the half a billion shilling price for the metro fibre network. Photo/FILE
A vicious boardroom battle over the pricing of AccessKenya’s metro fibre optic network caused the postponement of the firm’s annual general meeting, the Business Daily has established.
The meeting, which was initially fixed for May 4, was moved to August 31 in what the company attributed to a logistical hiccup.
It has now emerged that fear of an audit report showing lapses in the procurement of the inland cable leaking to shareholders and an extension of the board room fights to the AGM floor was behind postponement of the shareholders’ meet.
Documents seen by the Business Daily indicate that AccessKenya’s board split over the manner in which the company planned and procured suppliers for the inland optic fibre network, prompting them to order for a special audit by Deloitte.
Differences over the outcome of that audit and how the company should deal with it has since led to the resignation of three directors.
Eddy Njoroge, the managing director of KenGen was the first to leave the board on March 26 citing ‘ethical reasons’.
Ngungi Kiuna (a director at TransCentury) was forced out on April 19 while Mungai Ngaruiya resigned on May 3.
Documents seen by Business Daily show that the resignations were linked to a “lack of transparency in financial matters and weak management practices” relating to the handling of fibre optic deal.
The 150 kilometre inland cable is estimated to have cost the firm Sh450 million, having been revised downwards from the initial quotation of Sh624 million.
High costing of the project and fear that the firm may have lost Sh200 million in the deal prompted the board to appoint Ruji Engineers – an engineering firm - and Deloitte to conduct an independent audit of the transaction. Both advised that the fibre deal was suspect.
People familiar with the matter said things came to a head when Mr Ngaruiya demanded the resignation of four directors and forwarded the two audits reports to Capital Market Authority (CMA) in March.
That move forced the regulator to fire a stern letter to AccessKenya demanding an explanation on the matter within seven days.
The list of four directors on the spot included Michael Somen, the chairman, Jonathan Somen (managing director), David Somen (executive director) and Michael Turner, a private equity manager.
Details of the audits and the boardroom spats have been kept from the public, and fears that they might pop up at the firm’s shareholder meet forced the management to postpone the AGM.
“There were fears that Mr Ngaruiya would spoil the AGM. He was the only disgruntled director standing after Eddy and Kiuna resigned,” said an insider.
Mr Ngaruiya resigned three days after the firm announced the postponement of the AGM on March 31.
Mr Ngaruiya, and Mr Kiuna declined comment.
“Best protocol would be to contact AccessKenya directly,” said Mr Kiuna in an email response to our questions on Wednesday.
Jonathan Somen, the firm’s managing director said that the decision to build the internal fibre was passed by a majority of the board, arguing that only two of the seven directors opposed it. “The Deloitte report refuted any allegations of impropriety and/or loss but at the same time stated that the process of commissioning the fibre project could have been better handled and that certain board processes could be improved,” said Mr Somen in a statement on Thursday.
“Unfortunately, internal disputes have continued within the board since that time up to the recent departures of certain board members.”
Sources at CMA reckon that the three directors expressed concern that the listed firm was still being run like a family business.
The Somen brothers—Jonathan and David—run Accesskenya as a family entity before it was listed at the Nairobi Stock Exchange (NSE) on June 4, 2007.
On Thursday, the firm shares stood at Sh18.25 having dropped 19 per cent in the past three months, making it the worst performing share in the market at a time when the tide has been lifting nearly all boats.
The benchmark NSE-20 index—which tracks the performance of blue chip firms— made a return of 18 per cent during the same period buoyed by optimism over Kenya’s economy.
Financial analysts attribute Accesskenya’s slow run at the bourse to its low earnings, confusion over the AGM and its cost based on the price/earnings ratio.
“The company was a darling of the market last year but investors have more recently been showing lower appetite and are instead targeting other counters which are undervalued,” says Africa Alliance Investment Bank.
The bare knuckle war in AccessKenya’s boardroom can be traced to December 2008 when the management announced its plan to lay an inland fibre optic cable ahead of the arrival of international undersea fibre optic links.
A section of the board questioned the deal, arguing that the management had not presented them with a physical plan and a breakdown of its costs.
The management, however, decided to go ahead with the deal prompting a stormy board meeting on March 9, 2008 — where two directors Jonathan and David are reported to have stormed out.
“It was the ugliest board meetings I have ever sat in,” said a director. “There were concerns that Access was committing close to half a billion on the 150 kilometre project yet Jamii Telkom had done 200 kilometers with Sh300 million,” said a lawyer close to one of the former directors.
Arguments over the costing of the project split the board down the middle pitting Mr Njoroge, Mr Kiuna and Mr Ngaruiya against the Somens—Jonathan, Michael and David—and Mr Turner—who had been tapped to the board by the Somens.
Two camps
Last June, the firm appointed two more directors, Titus Naikuni (CEO of Kenya Airways) and commercial lawyer Paras Shah (a partner at Hamilton Harrison and Mathews) in what was seen as an attempt to cool polarization of the board.
Mr Shah is known to enjoy close ties with the Somens given that Hamilton Harrison and Mathews are AccessKenya’s lawyers.
Michael Somen also worked at the law firm for 39 years.
The hardening of positions between the two camps led to the special audit of the inland fibre project by Deloitte and Ruji Engineers.
The report by Ruji—which indicated that the firm had lost more than Sh200 million on the project—was dismissed by the board late last year on grounds that the firm had no capacity to carry out the audit.
But the Deloitte report—which was handed to the firm in February—is what underlined the falling out as it indicated that the project was done “informally.”
Mr Njoroge resigned on fears that his name could be muddied by the report given that he is also the chairman of NSE, managing director of a State corporation and sits in the boards of a string of firms.
Mr Kiuna is said to have been pushed out while Mr Ngaruiya who had opted to fight on threw in the towel after he became isolated in the board.
The fallout comes amid low reduced earnings from the firm having reported a pretax profit of 182.3 million shillings compared with 263.4 million shillings in 2008, hit by heavy investment in upgrading its network and the fibre optic cable.
The heavy investments also hit its churn with the firm returning a negative cashflow of Sh98 million, down from a positive cashflow position of Sh109 million at the end of the previous year.
This position has sparked rumours that the firm would find it difficult to settle its declared dividends whose payment date have now been pushed to September from this month.
But the firm in an email to our earlier story rubbished this position.
“AccessKenya has absolutely no cash flow crisis. On the contrary, we have significant cash available for our operations,” said an email sent by its spokesperson Nancy Imunde on Wednesday.
The firm is also reeling form its botched buyout of an IT service firm Openview Business Systems, which is said to be draining Sh7 million monthly from AccessKenya.
Access Kenya paid Sh150 million for a 70 per cent stake in Openview in 2007, but later on bought the remaining 30 per cent for Sh18 million this year—a signal that the firm overpaid for the 70 per cent stake that was is now valued at about Sh42 million.
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