Vulture fund demands Sh1b from Matiba family empire

Kenneth Stanley Matiba and a view of Hillcrest School in Nairobi, which forms part of the Matiba family business empire.  Photos/File
Kenneth Stanley Matiba and a view of Hillcrest School in Nairobi, which forms part of the Matiba family business empire. Photos/File 

The business empire of ailing politician Kenneth Matiba is entangled in a legal tussle with a vulture fund which is seeking close to Sh1 billion for “helping” the Alliance Group of companies reach a loans servicing agreement with Barclays Bank of Kenya and in managing the group’s other liabilities.

The demand by a Kenyan-Canadian investor, Hanif Sheikh, who helped save some of the Matiba family properties from imminent auction, is now at the centre of a dispute that is before court.

Mr Sheikh is seeking court orders to stop the Matiba family from selling any of its properties in Nairobi, Naro Moru and Mombasa before an arbitration tribunal is picked in London to hear the dispute.

The tribunal is to determine the amount of money the vulture fund is entitled upon disposal of some of Matiba’s charged assets.

The financial consultant, a former school mate of Matiba’s son Raymond, is seeking to enforce a contractual clause that - he says - entitles him to 27 per cent of the net proceeds after the payment of all outstanding loans.

Hanif’s Moja Group of Companies says it has for years been “engaged in restructuring and recapitalising companies that find themselves in or near receivership.”

Court papers indicate that he has of late been specialising in “syndicated investments”. And that is how he walked into the Matiba companies – thanks to his acquaintance to Raymond at Hillcrest School between 1979 and 1984.

While the current dispute is pegged on the Sh1.6 billion sale of Hillcrest Schools in Nairobi, it might roll over to Alliance Hotels, which are currently under receivership and going through a similar sale process.

Mr Sheikh claims in the court papers to have been instrumental in last year’s sale of Hillcrest to a group of investors led by two self-made IT millionaires, Ayisi Makatiani and Anthony Wahome.

The case that pits the troubled companies of the former Cabinet minister and the Canadian investment banker and his two companies; the Bahama’s registered Southcote Limited and Gulf Investments Africa Ltd, registered in Nairobi will be mentioned in court this Friday before Justice Daniel Musinga.

A former Cabinet minister in the Moi government, Mr Matiba’s financial troubles began when he challenged the former President Moi to introduce multi-party system – and the sorry state of his businesses is attributed to the excesses of Kanu regime.

For his multi-party crusade, Mr Matiba was subsequently detained without trial and was only released after he suffered a stroke while in Kamiti Maximum Prison which nearly-paralysed his right side.

As a result, his once vibrant family enterprise – of five star hotels and schools - found itself with a loan that reached Sh9 billion by the time Raymond Matiba is alleged to have sought Mr Sheikh’s help.

Pocket expenses

Mr Sheikh says in his affidavit that the Matiba family owes him "Sh886 million plus out of pocket expenses in excess of US$100,000.”

Some nine days ago, the Canadian appeared before Justice Musinga and received interim orders preserving all the Matiba properties and funds accruing from the sale of Hillcrest Schools pending the arbitration.

While Raymond Matiba sought not to comment on this article, court papers say that net balance from the sale of Hillcrest was to be deposited in a Barclays account in the name of Ritzenna Ltd in which Raymond, Andrew Smith and Hanif were signatories.

As part of the rescue measures Mr Sheikh lays claim to a 27 per cent of the residual value of the assets after liquidation of the amount outstanding to the bank while the Matiba family was to receive 36.5 per cent. 

The family of Stephen Smith, a long time business ally of Matiba in the Alliance Group, was to also receive 36.5 per cent.

It is this profit sharing agreement that appears to be the bone of contention after the Matiba family offered Mr Sheikh a sum of Sh153 million as compensation for his work.

Mr Sheikh is also seeking to stop the Matiba family from accessing the balance of sale proceeds from the sale of Marborough House for Sh210 million.

Titles to the house, which used to house the Saba Saba Asili headquarters in Westlands are deposited with a Nairobi law firm.

It all started in 2009 when Mr Sheikh, who was trying to rescue African Safari Club by helping restructure its debts, was approached by Raymond.

“He indicated to me that his preference was for me to bring-in capital to bail out the group companies from the imminent auction by the bank and that in so doing I would acquire equity in the group companies,” he claims in his papers.

“I made it very clear to him that unless it was absolutely necessary, it would be imprudent from a business point of view to sink more money into the debt-ridden companies and that the smarter thing would be to restrict the bailout strategy to reduction of the outstanding loan balance and an extension of the loan time within which to pay such reduced loan balance.”

Mr Sheikh registered Southcote Ltd and Gulfcap Africa Ltd (later renamed Gulf Investments) as his “special purpose vehicles”.

Very weak or dying

These two were founded as vulture funds or companies that  invests in debt issued by an entity that is considered to be very weak or dying, or whose debt is in imminent default.

His first task, he says, was to bring the Matiba and Smith family together “to agree on a common approach to deal with the Bank”.

It was this company that started negotiating with Barclays “to extend the repayment period and raise proprietary capital… and negotiate the release of assets held by the receiver and provide intellectual capital...”

For that he was to get the 27 per cent of the asset values under liquidation. Mr Hanif claims to have taken the matter of the sale of Hillcrest Schools to Barclays Bank PLC London expressing the frustrations that he was finding in negotiating with the local bank.

Barclays Bank PLC London sent its head of corporate recovery Africa, Paul Gunton who came to Nairobi and visited the Hillcrest Schools’ properties in Karen and State House Road.

Hanif says that they agreed that the “School’s loan” secured principally by the Hillcrest School’s properties would be settled in full at the reduced sum of approximately Sh900 million “through the immediate sale of the schools” and the residue would first be distributed to the minority shareholders, J.K. Gechau and the estate of the late S.N. Mburu.

The rest of the money was to be deposited into a new limited company incorporated on behalf of Matiba family, the Smith family and Gulfcap Africa or Mr Hanif.

The hotel loans was according to the agreement  be settled through the sale of the hotels by the receiver and the first sum of Sh750 million realised would go to the bank plus a further 25 per cent of the net proceeds of all further asset sales would go to the bank.

The balance of 75 per cent was to be deposited into the new company; Ritzenna Limited incorporated in British Virgin islands.

The current tussle is over the amount that should be deposited into the Ritzenna accounts and how much should be paid to Hanif and his company.

He claims that through his efforts, he managed to reduce the outstanding loan balance originally standing at over Sh9 billion made up of Sh2 billion for the school’s debt and Sh7 billion for the Hotels debt to the final settlement figure of Sh1.8 billion.

While this case is certainly going to be interesting, it will reveal the behind the scenes manoeuvres to safeguard  the Matiba empire and the pains that the family has been going through.