KCB sues Nairobi County on Sh5 billion defaulted Equity loan

KCB Group #ticker:KCB has moved to the High Court to enforce the collection of Sh4.3 billion worth of loan and interest from the Nairobi County which has defaulted on the credit inherited from Equity Bank #ticker:EQTY.

In an application filed before the High Court in Milimani, KCB wants the court to recognise a ruling from an arbitration dispute and compel the county government to settle the debt.

The county government was directed to pay KCB Sh4.3 billion in November last year after the matter was referred to Phillip Bliss Aliker, an arbitrator.

City Hall has, however, continued to default on the loan even after an arbitrator confirmed KCB’s claims and directed the Nairobi government to settle the debt.

"Leave be and is hereby granted to the applicant to enforce both the third interim award and the final award as a decree of this honourable court,” the application by KCB through the firm of Mohammed Muigai stated.

The loan was initially provided to the defunct Nairobi City Council by Equity Bank.

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.

The county government through lawyer Steve Mogaka pleaded for more time to file an objection and also bring in the National Treasury and the Controller of Budget into the case following the latest KCB suit.

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 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 (LATF) which represented resources previously provided by the national government before 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, Local Authorities Pension Trust and 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 has 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 NSSF (7.73 percent).

“In view of the foregoing, I verily believe that the applicant stands to suffer substantial and irreparable financial loss and harm in the event that the orders sought in the application are not granted,” said Mohamed Musa, an official of KCB, said in an affidavit.

The tribunal had noted that the county had admitted the debt but sought to stop the demand to allow it to transfer the loan to another bank, a move that was unsuccessful.

“These proceedings were stayed on the joint application of the parties for the purpose of enabling the respondent to repay its debt and transfer it to another bank,” the arbitrator disclosed.