The Capital Markets Authority (CMA) has opened investigations against listed Limuru Tea that is under Unilever control for undervaluing its 696.8 acre plantation and suspected cooking books as the multinational prepares to exit the company.
The probe follows a petition from a minority shareholder in Limuru Tea accusing the firm of valuing its land holding at Sh1 million against an estimated value of Sh23 million per acre or Sh16.2 billion.
This is revealed in a court fight where minority shareholders led by tycoon Joe Wanjui and Wainaina Kenyanjui are seeking the CMA to block the sale of Unilever’s 52 percent stake in Limuru Tea, arguing that minority shareholders were not offered a chance to buy the shares.
At Sh16.2 billion, the valuation of the land, based on court filings of the minority investors, is worth multiple times the Sh768 million market value of Limuru Tea.
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The CMA is also probing the firm for understating its revenues and delays in the collection of tea sales from Unilever, which is accused of overcharging the Kenyan tea firms for services.
“The Capital Markets Authority is carrying out an inquiry into the affairs of Limuru Tea as an issuer of securities to the public following allegations of misrepresentation of published financial statements with respect to understatement of revenues, inordinate delays in collection of trade receivables, high cost of sales and improper valuation of company’s land and building,” a letter by Director Markets Operations Abubakar H. Abubakar reads.
Limuru Teas annual report shows the company buildings and freehold land is being held at a carrying amount of Sh1.4 million as at December 2021.
The probe looks set to offer a peep into Unilever’s boardroom secrets and financial dealings in the Limuru Tea.
The minority owners claim Unilever sells inputs like fertiliser and labour to Limuru Tea at exorbitant prices and is the only buyer of the company’s tea leaves at a price that is often lower than those offered at the Mombasa auction.
This, Mr Wanjui and Mr Kenyanjui say, has helped to depress the company’s sales and profits.
Unilever also delays payments of more than Sh100 million annually owed to Limuru Tea, sometimes for more than 15 months, effectively granting itself interest-free loans with an indefinite settlement period, say the two shareholders.
“Limuru Tea is a real estate play. According to Hass Consult land index 2021, an acre in Limuru is going for Sh23.3 million. This means a market cap of Sh708 million as at July 2021 gets you 696.8 acres in Limuru,” Mr Kenyanjui said in court filings.
“This averages around Sh1 million per acre, a huge discount from HassConsult estimate of Sh23.3 million per acre,” he added.
In a complaint filed at the High Court, Mr Wanjui, 85, and Kenyanjui accuse Unilever of rejecting their offer to buy the 52 percent stake and instead sold the shares to private equity fund CVC Capital Partners.
Mr Wanjui and Mr Kenyanjui reckon the interests of CVC Capital Partners are not aligned to those of Limuru Tea and accuse Unilever of making partial disclosures to the CMA in the phased restructuring of the multinational’s tea business, which culminated in the sale.
The CMA has ordered Limuru Tea to provide its fixed asset register together with all its land valuation reports and certified copies of land title deeds as part of the probe.
Limuru Tea has hit back at the regulator, arguing it has no valuation reports to show because the property has not been valued afresh in recent years.
Through their lawyers Kaplan and Stratton, Limuru Tea protested requests for certified copies of their title deeds, challenging the relevance of the ‘sensitive documents’ to the CMA investigations.
“Whereas our client is aware that copies of land titles are public documents that may be obtained from relevant land registry by the authority, our client is keen to understand the relevance of the request for certified copies of its title deeds in the context of the allegations made against it as it appears unusual in the circumstances,” Limuru Tea says in court filings.
Unilever said in November it had agreed to sell its global tea business to CVC Capital Partners for Sh596.7 billion ($5.1 billion), concluding a process of reviewing and spinning off the division that took more than two years.
In the two years, Unilever transferred its 52 percent stake in Limuru Tea to an affiliate within the multinational in a global plan for a dedicated tea business and prepared plans to list the unit separately on a stock exchange or outright sale.
The Kenyan shareholders say the structuring of the deal denied them an opportunity to make a counter offer for the 52 percent stake valued at Sh443 million on the Nairobi Securities Exchange (NSE).
The two local shareholders have asked the court to prevent the CMA from approving the acquisition and separately petitioned the regulator to probe the transaction and claims of impropriety in Limuru Tea.
They say Unilever has undue influence on the board of Limuru Tea in breach of CMA corporate governance rules that require a third of board members to be independent directors.
The rules aim at reducing the influence of principal shareholders in the boardrooms as well as safeguard the interests of minority investors.
Mr Wanjui says six of eight board members of Limuru Tea are either current employees, former workers and past board members of Unilever.