Controversial businessman Kamlesh Pattni has walked into yet another storm after a bank claimed ownership of millions of Marshalls East Africa shares he recently sold at the Nairobi Securities Exchange.
Oriental Commercial Bank said in a public notice that the shares Mr Pattni sold early this year are held as security for a loan and should not have been traded.
It was not clear how Mr Pattni managed to sell the shares since Oriental Bank remains in possession of share certificates — which are evidence of ownership.
Marshalls Investment Limited, a company owned by Mr Pattni, submitted the certificates to the bank as collateral for a loan it took when the bank traded as Delphis Bank.
On Thursday, Oriental issued a caution to the public that any transaction involving Marshalls Investments Limited’s shares would not be effected without its consent.
“Oriental Commercial Bank holds as security the following shares in Marshalls (E.A) namely 1,353,994 shares as per share certificate number 3277 and 3,146,006 shares as per share certificate number 3009 which are pledged to it by Marshalls Investments Limited,” read a statement from the bank.
“Take notice that any transfer of the said shares 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.”
But the warning appeared to have come too late because Mr Pattni appeared to have completed the sale of his 50.7 per cent stake in the car dealer to a consortium of investors nearly two months ago.
A senior officer at Oriental Bank said the notice was in response to Mr Pattni’s announcement of intention to sell his stake in the company earlier this year.
He said the bank was not aware that transactions relating to the shares had been executed and learnt of it from a story published in Thursday’s edition of the Business Daily.
The bank’s insistence that it remains in possession of the original share certificates has raised questions on the legality of the sale and authenticity of the documents that Marshalls Investment used to prove its ownership.
“We were shocked when we saw the list of top investors in Marshalls East Africa.
This must have been some under-the -table dealing and we have instructed our lawyers to deal with the matter,” said the Oriental Bank officer who sought anonymity.
The officer said the loan that was secured by the shares was not being serviced and efforts to dispose of them to recover its cash had been hampered by a pending High Court case pitting Mr Pattni and his long standing business rival, Ketan Somaia.
The total outstanding loan amount could not be immediately established due to the long period it had been pending.
Delphis Bank was renamed Oriental Bank in 2002, four years before Mr Pattni claimed ownership of Marshalls Investment Limited after buying out Mr Somaia. This implies that Mr Pattni inherited the debt from his business rival who was a major shareholder in Delphis Bank.
The bank was one of the lenders to Goldenberg International, the company associated with Kenya’s biggest financial scandal of the early 1990s.
Goldenberg, owned by Mr Pattni, is the company that fraudulently obtained billions of shillings from the Treasury in false gold exports compensation.
A commission of inquiry into the Goldenberg scandal found that Delphis defrauded the Central Bank of Kenya of billions of shillings in fake export compensation claims. CBK is still battling it out with Oriental Bank in court.
Last year, Marshalls received a Sh401 million debt waiver in favour of a loan that Mr Somaia took from KCB.
Directors and executives friendly to Mr Pattni successfully argued in court that the loan was irregularly obtained when Marshalls did not have a board to approve the transaction.
By the end of March 2010, Marshalls East Africa’s debt at KCB had grown to Sh808 million.
The waiver helped to brighten Marshalls’ poor performance for that year – the company having provided Sh469 million as an expense on its books pending the outcome of the court case.
Last year, Mr Pattni sold a 15 per cent stake in Marshalls East Africa that earned him more than Sh30 million.
He then issued a notice of intention to sell additional seven million shares or 48.6 per cent stake in the company in March this year.
Latest regulatory filings to the Capital Markets Authority (CMA) show that Mr Pattni’s investment vehicle, Marshalls Investments Limited, has disappeared from the list of top shareholders while six existing owners increased their stake by 22.7 per cent.
Three new investors — Global Ltd, Azmaveth Investment and Kobos Ltd — entered the car dealer’s top shareholders’ list with a combined stake of 28.4 per cent.
Sources close to the share transaction said it was concluded between April and May and came as a surprise because analysts had expected that Mr Pattni would sell his stake to one of the global car dealers angling for an entry into the Kenyan market.
Woodside Ltd, Abner Holdings, Ahoh Investment, Kenaz Holdings, Aijalon Investments, and Ramoth Holdings are the existing shareholders whose stakes rose by between 1.8 per cent and 8.1 per cent.
Mr Pattni and Mr Somaia went to court in 2006 after Mr Pattni claimed that Mr Samoia had refused to hand over control of Marshalls to him even after he acquired a controlling stake in the firm.
The ownership war spilled over to the firm’s AGM, causing the warring shareholders to hold parallel meetings. The rivalry came to an end two years ago when the courts ruled in favour of Mr Pattni.
Investors have taken notice and the company’s share has become the least sought-after at the Nairobi bourse and goes for weeks without trading.
Marshalls’ share price stood at Sh12.3 yesterday and has shed 7.8 per cent in the past 12 months.