Asset manager Amana Capital has stopped its clients from withdrawing their funds after investing a significant chunk of assets under management in the collapsed Nakumatt Holdings.
Amana’s shilling fund has remained frozen over the last two years. This has frustrated clients who had been accustomed to recalling their capital in a matter of days when entering similar investment vehicles.
Amana gated its funds after investing Sh275 million in Nakumatt’s commercial paper, an amount that represented 20 percent of its assets.
Nakumatt defaulted on the commercial paper holders among other classes of creditors, sparking major write-offs among banks, suppliers, insurance firms and high-net-worth individuals.
The fund manager in the latest communication to its clients said it was working with the Capital Markets Authority (CMA) and stakeholders to ensure recovery of the funds.
During a 2018 meeting, Amana Capital had considered either shareholders’ capital injection or taking legal action as the only two viable options to recover the funds.
“As explained at the EGM (extraordinary general meeting) convened on November 23, 2018, our investment decision was informed by the positive performance and outlook of the retail chain at the time.
“Further, this was backed by the approval by fund experts in the market as well as the regulators,” Amana Capital said in a letter to its clients.
“We are currently in discussion with our regulator Capital Markets Authority, and other stakeholders and it is for this reason we are kindly requesting additional patience as we work through it. A resolution will be communicated to you before 29 February 2020.”
Amana Capital is among a group of investors that provided Nakumatt with a total of Sh4 billion in 2016 when they purchased the retailer’s commercial paper.
Commercial papers are short-term debt instruments used by companies to finance their working capital.
They typically offer higher rates of return compared to bank deposits and T-bills.
They are unsecured and come with little financial disclosures.
In recent years, they have been issued by highly indebted companies, including ARM Cement that had exhausted their bank lines.
Nakumatt’s creditors have passed a resolution to liquidate the retailer whose negative equity had risen to Sh29.4 billion in the year ended February 2019, indicating the large losses to be soaked by the creditors.