Telecoms operator Safaricom has lowered its valuation of a five-acre piece of land it bought last year from a private equity firm, lending credence to a leaked audit report that found the transaction price to have been inflated.
Safaricom has in its latest financial statement booked a fair value loss of Sh366 million on the property, having lowered its value to Sh845 million from the purchase price of Sh1.2 billion barely a year after it bought the land from private equity firm Actis.
“The investment property relates to Land Title No 164259 and Title No 164260 located in the Nairobi area. The fair value was determined by reference to market evidence of recent transactions for similar properties,” Safaricom said in its annual report.
In Kenya, land has in the past 20 years proved to be one of the most valuable assets whose value has continued to appreciate across all cities and major towns, making Safaricom’s decision unique.
Over-valuation of the land was one of the key issues that consultancy KPMG flagged in a draft internal audit report on Safaricom’s processes that also blew the whistle on other multi-million shilling tenders.
Safaricom paid Sh230 million per acre, which was more than double the Sh100 million per acre market price for land around the Kasarani District, KPMG said in the forensic audit report.
Pricing the property at Sh845 million means Safaricom has valued the land at Sh169 million per acre, taking a Sh61 million hit per acre before inclusion of transaction fees.
The land, located within Nairobi’s Garden City — a residential, retail and office complex – was to accommodate Safaricom offices, call centre and data centre under a project dubbed ‘One City’.
KPMG said in its report that Actis had bought the entire 32-acre Garden City land for Sh1.2 billion or Sh37.5 million per acre in 2011 from East African Breweries — and cited the purchase price as part of the reason it had concluded that the transaction price was inflated.
Actis adamant pricing was right
The high pricing of the land sale to Safaricom saw Actis book huge returns from the investment, an outcome that has now turned sour for the private equity firm.
Directors of Actis have held that the pricing was right, citing improvements it made on the land following its purchase from EABL.
Actis yesterday expressed surprise at Safaricom’s decision to devalue the land, insisting its dealings with the telecoms giant were above board.
“What Safaricom does in their accounts is totally up to them,” said Actis East Africa director Michael Turner.
KPMG had singled out Safaricom’s chief financial officer, John Tombleson, for blame over the high pricing of the land after finding out that he had begun talks with Actis to buy the land eight months before Safaricom’s board of directors approved the ‘One City’ project.
Vodafone, which is Safaricom’s largest shareholder, immediately recalled Mr Tombleson from Nairobi and sent him to New Zealand (his home country) as integration director.
Property consultants, Mentor Management Limited, received Sh11.7 million, being one per cent of the transaction for conducting the land search on behalf of Safaricom.
Safaricom had sought an external consultant in an effort to avoid paying inflated prices.
Safaricom’s management has previously stated that the audit report was incomplete and that it had not found any Safaricom employee to have inappropriately benefited from the commercial agreements flagged by KPMG.
Safaricom runs a tight corporate governance system that includes annual disclosure of fraudulent transactions reported within the firm and actions taken.
This year, the telecom firm reported 27 fraud cases, which resulted in the dismissal of 16 employees and issuance of warning letters to 18 others. Two cases were forwarded to the police.
Bob Collymore, the Safaricom chief executive, has also taken the high moral ground to become the first head of a private company to publicly declare his wealth.
Mr Collymore challenged other heads of private institutions to follow suit, arguing that a corrupt private sector was the key driver of public sector corruption.
It remains to be seen whether Safaricom will retain Actis-owned Ruaraka Diversified Investments as developers of the office complex following its latest decision to devalue the land.
The cost of putting up the complex is estimated at $70.05 million (Sh7 billion).
Mr Collymore is reported to have suspended any further spending on the ‘One City’ project last September, signalling that the top management had smelt a rat.
The decision to move Safaricom’s operations and staff to one location was mooted in May, 2013 soon after the appointment of Roy Masamba as the director of resources.
The change was to put Kenya in line with Vodafone global standards. Safaricom currently occupies two buildings connected by a gangway on Nairobi’s Waiyaki Way, its former head office building in Westlands and a large call centre on Nairobi’s Mombasa Road.
Minimum standards of the new offices included fit-out catering for 1,969 staff, an internal area of 18,834 square metres, two levels of basement parking comprising 564 spaces and double-glazed windows with environmental controlled air-conditioning.
Mr Masamba, who exited Safaricom and joined rival Airtel, was also named in the report alongside David Kinuu (head of human resource - shared services), Vodafone’s group property strategy manager, Richard Muraszko, and former Vodafone executive Billy Davidson.