The High Court has cleared KCB Group #ticker:KCB to seize and auction the assets of Nairobi County over a Sh4.3 billion defaulted loan.
Justice Chacha Mwita dismissed the county government’s application challenging the amount awarded by an arbitrator in November 2019.
The lender moved to court in 2020 seeking recognition of the award by Phillip Bliss Aliker, an arbitrator who was chosen by both parties.
City Hall has, however, continued to default on the loan even after an arbitrator confirmed KCB’s claims and directed the Nairobi County government to settle the debt.
“In the circumstance, therefore, having considered the application, the response and submissions as well as the law and the decisions relied on by parties, and upon giving due consideration to all those, the conclusion, I come to is that the application dated 2nd October 2020 has merit,” the judge said.
The judge said there was no dispute that parties agreed to go for arbitration, settled on the sole arbitrator and proceeded before him.
He dismissed the county government’s application to have the award set aside, saying it did not give a good explanation as to why it took it too long to challenge the award.
The amount published in November 2019 and confirmed in May 2020 includes Sh4.29 billion of the award and costs of Sh6 million.
The loan was initially provided to the defunct Nairobi City Council by Equity Bank #ticker:EQTY . The debt was inherited by Nairobi County following the creation of the devolved governments in 2013.
KCB bought the loan from Equity in September 2014, offering better terms on the credit facility to the county government.
Justice Mwita said the law demands that an arbitral award be recognised as binding and enforced after court’s approval.
The county government further argued that it was not given an opportunity to be heard regarding the statement of account provided to the arbitrator, thus being condemned unheard.
City Hall runs a budget that is dominated by payment of salaries to its bloated workforce, leaving little for payment of debt and key projects like building roads and hospitals.
Its budget woes have been worsened by the transfer of Nairobi’s key functions and cash to the Nairobi Metropolitan Services (NMS) under Major-General Mohammed Badi.
Evidence presented before the court showed that Equity had lent the defunct Nairobi City Council Sh5 billion in 2011.
The money was supposed to help pay off statutory debts to allow the city council access Local Authority Transfer Funds, which represented resources previously provided by the national government before the creation of counties to boost service delivery at the grassroots.
The remittances were made directly to the National Social Security Fund, the Kenya Revenue Authority, the Local Authorities Pension Trust and the Local Authorities Provident Fund.
Equity said in 2014 that City Hall owed it Sh4.75 billion, including an overdraft of Sh1.45 billion.
When KCB took over the loan in September 2014, it gave the county more time to repay the debt by increasing the maturity period to eight years at an interest rate of 13 percent.
Equity was charging a varying annual interest rate of between 18 percent and 24 percent on a reducing balance and the county was required to pay back the money in 60 months.
KCB also offered the county a six-month grace period before it could start servicing the debt.
But a dispute arose and the matter was referred to an arbitrator, who made a decision issued on November 12, 2019.
The arbitrator, Mr Bliss, said the county owed KCB a total of Sh4.29 billion. He further directed the county to pay the lender Sh6 million as additional costs incurred while trying to pursue the debt and another Sh3 million for tribunal costs.
“The sums awarded to the applicant are significant. As such, it is necessary for the applicant to recover these amounts,” KCB said, adding that the county had been unwilling to settle the amount.
KCB’s chief executive Joshua Oigara sought the intervention of the National Treasury in a letter dated November 28, 2019.
The government is the top shareholder in the lender with a combined stake of 27.49 percent held through the National Treasury (19.76 percent) and the NSSF (7.73 percent).