The Auditor-General has flagged non-performing investments worth Sh630.3 million on the books of the State-controlled National Social Security Fund (NSSF), revealing assets that have either become worthless or failed to generate returns.
The dead portfolio includes stakes worth Sh161 million in UAP Holdings and Sh247 million in Consolidated Bank, with the total investment in the two firms standing at Sh408.7 million in the year ended June 2022.
“The fund continues to hold investments with no return by way of dividends or capital appreciation. The carrying valuation for the investment…has not been determined,” the Auditor-General said in a review of the UAP and Consolidated Bank investments.
The NSSF also holds investments in ARM Cement worth Sh16.4 million, East African Portland Cement Company (Sh194.4 million) and Sameer Africa (Sh10.8 million) whose value is uncertain, according to the audit review.
ARM’s shares remain suspended at the Nairobi Securities Exchange (NSE) after the firm went under administration in August 2018 and subsequently liquidation. While the EAPCC and Sameer remain in business, they have come under financial stress in recent years.
“In the circumstances, the accuracy and fair valuation of quoted investment of Sh221.6 million in three companies could not be confirmed,” said the Auditor-General.
The Auditor-General’s concern over the EAPCC investment was largely due to a debenture placed by KCB on the firm’s assets about a Sh6 billion debt claim.
The company however said that by the end of June last year, it had settled the debt via land transfers to the lender, and was also selling more land to fund a restructuring of its balance sheet—settling debt and raising working capital.
Sameer’s valuation uncertainty was due to redundancies in its workforce and the declaration of a profit warning for the year ending December 2022.
ARM on its part was put into liquidation starting October 2021, where the Kenyan assets were sold to National Cement Company, owned by billionaire businessman Narendra Raval for Sh5 billion.
Several creditor claims were then settled, in line with seniority in the debt hierarchy, but with haircuts because the realised amount could not cover all the claims.
Due to the insufficient funds, ARM’s administrators PricewaterhouseCoopers said shareholders would not get any distribution in respect of their shares.
The liquidation process was still going on by the close of NSSF’s financial year in June 2022, and the Capital Markets Authority was also yet to delist ARM Cement.
These concerns by the Auditor-General on the non-performance of these stocks and their valuation is because equities are among the major investments of the NSSF, alongside bonds and property.
The returns generated from these investments are, therefore, key in determining the annual interest credited to savers in the fund.
In the year ending June 2022, the investment income of the fund stood at Sh26.8 billion, up from Sh21.6 billion in the previous year.
