KCB wins banks fight for ex-Nakumatt CEO assets

KCB Group #ticker:KCB has won the fight with three other banks seeking to auction a prime property belonging to the CEO of fallen retail giant Nakumatt, Atul Shah, over a Sh2 billion debt.

High Court judge Alfred Mabeya on Tuesday allowed KCB to complete the sale of the property in Industrial Area, Nairobi that is also charged to Bank of Africa, DTB Bank #ticker:DTB and Standard Chartered #ticker:SCBK.

This allowed KCB to press for a speedy auction, fearing an appeal would open the window for rival lenders to scuttle its claim on the asset.

The bank sold the property to Furniture Palace International Ltd for Sh1.04 billion, taking a loss of about Sh1 billion.

The sale deal was set to be completed on Wednesday.

The judge questioned the credit appraisal of the lenders, wondering how multiple banks would offer loans worth Sh4 billion based on a single security valued at less than Sh2 billion.

“If the court was in doubt, which is not the case here, the balance of convenience tilts in favour of allowing the defendant (KCB) to recover its outlay,” said Justice Mabeya.

“The court was invited to consider that the sale by the defendant would injure and prejudice the rights of the other lenders who have the suit property as their only security. While this court sympathises with the said lenders, it defeats logic how prudent bankers would extend facilities amounting to over Sh4 billion on a single security whose value is less than Sh2 billion.”

In August, Bank of Africa got the court’s nod to auction Mr Shah’s personal property over loans offered to the collapsed retailer, but the former Nakumatt boss blocked the sale at the Court of Appeal.

KCB argues that it was not party to the Court of Appeal suit and that its absence in the case does not block it from selling the land.

Nakumatt owes Stanchart and DTB Bank a combined Sh4.5 billion and court documents show that they were also eyeing the Sh2 billion property.

The banks offered Nakumatt billions of shillings on the strength of the retail chain’s cash flow.

But Mr Shah used his company Collogne Investments, which owned the Sh2 billion property in Nairobi, as Nakumatt’s guarantor to offer additional comfort to the multiple bank loans.

The banks have been battling to seize assets linked to Mr Shah and his family to recover the billions of shillings lent to Nakumatt.

The former Nakumatt CEO had sought orders stopping the auction after KCB revealed that it had already entered into a sale deal with a third party and the transaction would be frustrated if the application was not determined before November 25.

In an affidavit Atul’s son -- Ankoor Shah -- told the court that KCB had undervalued the property, arguing that it had found a buyer who would purchase the land and office block for Sh2 billion.

Further, he said there was an undertaking by KCB’s lawyer to freeze the auction, pending the determination of its application.

The court heard that on September 26, some strange people invaded the premises claiming to have bought it in an auction.

The Nakumatt owners said efforts to get a clarification from the KCB’s advocates on the auction failed.

KCB in reply said Collogne had guaranteed Nakumatt facilities to the tune of Sh1 billion and used the property as security.

The lender said Nakumatt defaulted, and that on March 15 it sent a demand for payment of Sh2.07 billion.

Nakumatt closed shop in January with debts estimated at Sh30 billion -- including Sh18 billion to suppliers, Sh4 billion to commercial paper holders and the rest to banks, who are more aggressive in pursuing their unpaid loans.

Regulatory filings indicate that Nakumatt owed DTB Bank Sh3.6 billion, Stanchart Sh900 million, KCB Sh1.9 billion, Bank of Africa Sh328 million, UBA Sh126 million and GT Bank Sh104 million.

Mr Shah says in court papers that some lenders offered Nakumatt loans with an eye on his properties, arguing that the banks were reluctant to support its rescue plan.

“That I believe that if the facilities were not disbursed with the singular agenda of deliberately burdening the borrower beyond the point of return (sic) and therefore appropriating the applicant’s subject property then the respondent ought to have committed to the rejuvenating of the borrower’s operations,” Mr Shah argues.

Creditors of the supermarket chain on January 7 voted to wind it up after it failed to repay debts following a failed rescue attempt.

RECOVERING BILLIONS

After the vote, the banks started to identify properties and bank accounts linked to Mr Shah, especially outside Kenya, with a view to seizing and recovering the billions of shillings owed to them.

The local assets include shopping malls, office blocks and prime land in Nairobi, Mombasa and Nakuru — where Atul’s father started Nakumatt as a retail shop.

The properties are owned by third parties linked to the Shah family, which holds the bulk of Nakumatt shares, according to a document prepared by the retail chain’s court-appointed administrator.

The Directorate of Criminal Investigations’ Anti-Banking Fraud Unit is also investigating Nakumatt for alleged theft and money laundering.

In its heyday, the company, which began life as Nakuru Mattresses, had more than 60 outlets across Kenya, Uganda, Tanzania and Rwanda, before it was brought down by poor management and debt-fuelled rapid expansion.

However, its financial problems led to empty shelves and store closures that eventually culminated in the demise of the once leading supermarkets chain.

Foreign investors could have helped overhaul management and injected cash, but despite a swarm of suitors, no deal was made in the end.