Companies

Shareholder war puts CMC under regulator’s radar

cma

CMA chairman Kung’u Gatabaki with Ms Stella Kilonzo, the CEO. Mr Gatabaki, said the proposals are awaiting Finance minister Uhuru Kenyatta’s approval before they are gazetted into law.. Fredrick Onyango

Capital markets regulator is investigating the procurement practices that have sparked a vicious boardroom war at motor dealer CMC Motors and allegedly caused the company’s shareholders a Sh2 billion loss.

The probe comes days after Peter Muthoka was replaced by Joel Kibe as chairman of the CMC board, sparking a row over the legality of boardroom coup and fraud at the Nairobi Stock Exchange-listed firm.

“If indeed we suspect that there are instances of fraud we will send a team there to investigate and will not hesitate to take directors who are involved to court,” said Mr Kung’u Gatabaki, the chairman of CMA.

The capitals market regulator has asked for more information from CMC on its operations, he said.

Mr Muthoka claims he was toppled as chair of the board after questioning proposed changes in the company’s operations that he alleges could have cost the firm Sh690 million annually.

But CMC’s chief executive Bill Lay says Mr Muthoka was replaced in the interest of corporate governance following revelations that his firm Andy Forwarders, a logistics company that is the largest single service provider to the motor dealer had allegedly defrauded the motor dealer nearly Sh2 billion in five years through over-invoicing.

The boardroom wars that have since turned into a public spat appeared to be headed for courts Thursday after Andy Forwarders published a rebuttal of CMC’s statement in the local dailies accusing it of fraud.

No comment

Lawyers said the investigations may seek to establish whether minority shareholders have failed to realise shareholder value or suffered losses as a result of the issues raised in the media statements.

On Thursday, the warring factions refused to comment after CMA gagged them and a director who sought anonymity said CMC has put on hold plans to cut links between the auto firm and Andy Forwarders.

“The Board also gave management the immediate authority to terminate the relationship between CMC and AFS which will be done today,” said Mr Lay in a statement on Wednesday.

The regulator said it will not take action on the corporate governance breaches at CMC, arguing that Kenya has no laws to back it since the country is guided by guidelines that companies are not obligated to follow.

“In terms of listed companies, we have had standards which are guidelines that are not enshrined in the law but we have been working to have these put into law,” said Stella Kilonzo, the chief executive officer of CMA.

CMC management reckon that it was wrong for Mr Muthoka to serve as chairman and at the same time handle the firm’s supply chain besides being one of the biggest buyers of the motor dealer’s heavy commercial trucks for its logistics business, including Iveco and Nissan Diesel (UD) brands.

Mr Lay accused Andy Forwarders of inflating freight costs to CMC by between 10 and 30 per cent – reducing the motor dealer’s competitiveness in Kenya’s price-sensitive market.

Mr Muthoka said that conflict of interest issue advanced by CMC management for his removal was an excuse to engineer the boardroom coup.

He added that his removal from the chair of CMC is linked to his opposition to the salary cuts of 68 senior managers, outsourcing of sales targeted at the government and moving of the Land Rover and Volkswagen franchise to the Sameer Park, arguing that the latter two could have cost the auto firm about Sh690 annually.

Mr Muthoka was himself appointed CMC chairman in April what was seen as majority shareholders’ revolt against Mr Kiereini on March 25.
He has interests in 132 million shares or a 22.6 per cent stake in CMC under its own name and CFC Stanbic Nominees.

CMC Motors has in the past two years struggled to match its 2008 peak performance when its net profit stood at Sh927.1 million.

That more than halved to Sh406.6 million last year, and Mr Lay who was tapped as CEO in June from General Motors is working on a recovery plan.