Businessman Kamlesh Pattni executed a complex mix of transactions that spared him of heavy debt obligations in a motor firm and left a local bank holding worthless share certificates.
Mr Pattni, who is the architect of Goldenberg, transferred shares worth millions of shillings he held at Marshalls East Africa Limited through his company, Marshalls Investment Ltd, leaving Oriental Commercial Bank holding worthless ownership documents.
Also read: Pattni sparks a storm with the sale of Marshalls shares
Oriental had charged the 4.5 million Marshalls shares worth Sh50 million as security for a loan that Ketan Somaia, a politically-connected business operative and Mr Pattni’s partner at Marshalls, took from the bank in the 1990s and left without settling.
Mr Pattni transferred the shares early this year after publishing a notice in local newspapers despite not having the original share certificates, sparking a row with the bank that is yet to be resolved.
The sale of Marshalls Investment Limited’s shares in Marshalls East Africa without Oriental’s knowledge has created a spectre in Kenya’s capital markets and left a number of institutions, including the regulator, the Capital Markets Authority, on the spot.
Mr Pattni pulled the rug from under Oriental’s feet when he transferred the shares in batches to three new entities – Global Limited, Azmaveth Investment and Kobos Limited – effectively removing Marshalls Investment from the list of top shareholders at Marshalls.
Though people familiar with the transactions say the move was part of a larger strategy to boost the Marshalls’ share price at the stock market and future growth that has been shackled by his presence, it has particularly left Oriental in a tight spot.
The bank cannot lay claim to the shares held by the new investment vehicles and if it went to court would be suing a shell company without any assets.
A source within Mr Pattni’s business circles who requested not to be named so that he could speak candidly about the matter claimed that the transaction was above board and had been done with the knowledge of the Capital Markets Authority (CMA).
The source claimed that Mr Pattni was not aware of the charge on the shares as he had forcefully taken over Marshalls from his former business-partner-turned foe Mr Ketan who did not hand over all the legal documents.
Mr Pattni is said to have used duplicate share certificates issued by the new board to process the transfer, a deal that Oriental only became aware of after it had been concluded.
Mr Pattni had on March 14 published a notice in newspapers expressing his intention to sell up to seven million out of the 7,279,082 shares he held in the motor firm through Marshalls Investments.
Regulatory filings show that by June 30, Marshalls Investments had disappeared from the list of the motor firm’s top shareholders and its 50.57 per cent stake was now shared among three new investors (28.4 per cent) and some old shareholders who had increased their stake by 22.7 per cent.
It has since emerged that the transaction did not involve any sale of shares but was simply a transfer of stocks to the new entities that our source described as “associated with Mr Pattni”.
On July 26, Oriental Commercial Bank published a notice in newspapers warning the public against trading in the shares it said were in its custody in lieu of a loan advanced to Mr Pattni’s company.
“Take notice that any transfer of the said shares (1,353,994 in certificate number 3277 and 3,146,006 in certificate number 3009) or issuance of any duplicate certificates in respect thereof may not be effected and will not be recognized or accepted without the knowledge and written consent of the bank,” Oriental said in a statement.
The CDSC, which is the official custodian of all shares traded at the Nairobi Securities Exchange (NSE), said it was not aware of the transfers because the shares in question had not been immobilised and were still held by the owners. The March transactions were Marshalls Investments latest ‘share sale’ after last year’s disposal of a 15 per cent stake in the motor firm.
Mr Pattni is said to retain his 65.57 per cent stake in Marshalls through the various investment vehicles adding mystery to the real nature of the latest transfers.
“Mr Pattni retains the majority interest in Marshalls,” said our source adding that the purported share sale was merely aimed at improving the performance of the share price and clearing the way for the company to attract strategic investors and sign new deals.
Marshalls share price has risen from an average of Sh12.3 in March to Sh14.2 in recent days, representing a 14 per cent gain. That has pushed Marshalls’ market capitalisation from Sh177.9 million to Sh204.4 million during the same period.
The share price gain came after several block trades of the Marshalls stock at the NSE associated with the Pattni-controlled investment vehicles.
The legal interpretation of Mr Pattni’s notice to the Capital Markets Authority and the public also remains to be seen as some experts have argued that it amounts to an offence that could expose him to action from the regulators.
Trading data shows that a total of 6.4 million of Marshalls’ shares have changed hands since March 16 – just after Marshalls Investments issued the notice of intention to sell.
Official records show that the company sold one million shares on March 23 and an additional 1.1 million shares on March 30.
Our source said that Marshalls share price has suffered from a lack of liquidity and that splitting them into several units was to increase demand for the stock among investors who buy smaller units at a time.
Regulatory filings show that while Marshalls Investments Limited disappeared from the list of the motor dealer’s top shareholders, three new entities had entered with a combined stake of 28.4 per cent.
Existing shareholders Woodside Ltd, Abner Holdings, Ahoh Investment, Kenaz Holdings, Aijalon Investments, and Ramoth Holdings also increased their combined stake by 22.7 per cent, each raising their shareholding by between 1.8 and 8.1 percentage points each.
Sources said that despite the ownershio changes, Mr Pattni remains the majority owner of the motor dealer.
Mr Pattni was the architect the Goldenberg scam that cost the Kenyan taxpayers more than Sh50 billion in fictitious gold export compensation schemes in the 1990s.
The thinking at Marshalls was that Mr Pattni’s absence from the list of top shareholders would leave Marshalls some headroom to actively pursue strategic investors and new franchises from partners who may not want to associate with him.
International investors, in particular, have strict business compliance requirements spanning ethical, social, and environmental matters that made it difficult for them to enter a company where the controversial businessman was the principal shareholder, our source said.
Marshalls has suffered major losses since losing the flagship Peugeot franchise in 2007 forcing it to rely on dealership of Tata trucks and KIA saloon cars.
The company is seeking to sign new dealerships like Audi, Ashok Leyland, and Force Motors to boost its thin product line and return to profitability.
Marshalls posted a loss in the year ended March on reduced car sales and shrinking market share.
The company made a net loss of Sh165 million in the review period compared to a net profit of Sh181.5 million a year earlier and a loss of Sh344 million in 2010.
Marshalls’ sales dropped to Sh234.3 million from last year’s Sh263 million and Sh1.3 billion in 2007.
Last year’s profit was boosted by the waiver of a Sh401 million loan that businessman Ketan Somaia had borrowed from KCB.
Mr Somaia is a former shareholder in the firm, who lost the battle for control of the auto firm to Mr Pattni in 2010.