Category Archives: Corporate governance

Uchumi Rights Issue: CMA Acts – Part I

Yesterday the Capital Markets Authority (CMA) meted out punishment, following the Uchumi Supermarkets (USL) rights Issues.

Back in 2014. Uchumi’s rights issue to raise Kshs 895 million ($10 million) by offering shareholders 3 shares for every 8 held at Kshs 9 per share, with the funds to be used for expansion in East Africa and refurbishment of stores.

(Excerpts from) The CMA statement reads:

  • The regulatory breaches of the former directors and the two USL officers were identified in respect of the period of 2012 – 2015 and involved making changes to the Information Memorandum (IM) after CMA approval; failing to make proper disclosure of material information to inform investor decision making; misapplication of Rights Issue (RI) proceeds; mis-statement of financial statements in 2014; weaknesses in board oversight of the branch expansion programme; inadequate conflict of interest management; and inadequate disclosure of asset sale and leaseback arrangements. The breaches of the transaction advisor revolve around not ensuring changes made to an approved IM were submitted to CMA for further approval.

Also that

  • Out of the Ksh895 million right issue proceeds received by USL in January 2015 it was established that a small portion was used to pay the rights issue expenses but the balance was transferred to the trading account from where payments were being made to settle outstanding suppliers’ debts as opposed to funding branch expansion.


  • With respect to the financial statements for the period ended June 30, 2014, that were used to support the Right Issue, it was established that a Ksh350 million asset sale and lease back transaction was recognized, while the agreement for the same was signed and funds received in September 2014 . As a result of this recognition, USL’s profits as at June 30, 2014 were enhanced by Ksh19.97 million arising from the gain on sale of the assets. Further, the USL liabilities were understated to the tune of approximately Kshs.1 billion. The Board subsequently reversed this treatment in the audited accounts in 2015, stating that this recognition had been premature.

Other recent actions by the CMA have targeted directors of Imperial Bank and CMC Group.

New Chairman at KQ

Ahead of the release of their half-year results, Kenya Airways has announced a board change with former Safaricom CEO, Michael Joseph being elected as the new chairman of the airline. He replaced Dennis Awori who had been on the board and chairman, for just over a year since the 2015 AGM.

Joseph was a surprise addition to the Kenya Airways board at the AGM on which he did not event attend. He got more votes than the government officials, indicating he had the support of the Kenya government, KLM, and also the shareholders in attendance (the IMF seems not to vote).

KQ CEO deck

This is a tough time for the airline on the back of two years of staggering losses. Awori joined the board in the middle of this, and just as the airline embarked on a turnaround plan called Operation Pride.  The results of it  are yet to be fully realized, but already there have been drastic decisions made with the paring down of the airline’s (large idle 777 fleet), sale of the Heathrow slot, securing new finance from the Kenya government and Afrexim bank. Underlying it all is a repudiation of the very ambitious ‘Project Mawingu’ that has a massive investment in the airlines fleet to support a network growth to new destinations.  It anticipated massive growth in numbers through Nairobi but that did not happen as the planners appear not to have anticipated the growing expansion of Gulf carriers into Africa where they are now believed to account for 80% of the traffic.

In adding Michael Joseph it the board hopes he can repeat the success at Safaricom and already the move has been cheered by investors  with the share price rising to its highest point in over a year, since his addition to the board.

chart & data from

Awori has a stellar CV as a director in corporate Kenya where he’s also the chairman of Toyota Kenya and Bank of Africa, and on the board of EA Cables, Vision 2030 and KEPSA –  but he was the wrong man at the wrong time. These are turbulent times at KQ that is undergoing massive internal change that requires effective and reassuring communication to the investors, staff, and the public. Already Joseph appeared at the airline pilots union and appeared to have persuaded them to shelve their potentially-crippling strike plan.

Imperial Bank: The End?

The Central Bank of Kenya (CBK) announced that today that the closed Imperial Bank (IBL), will not reopen. In fact it will be liquidated by NIC Bank, Kenya’s 9th largest bank.

This all started 9 months ago, on 15 September 2015, when the Imperial Bank group managing director (GMD), Abdul  Janmohamed passed away.  The bank directors then discovered fraudulent transactions that the GMD has orchestrated at the bank. They presented their findings to the CBK, who then shut the bank.

While the CBK blames the board and shareholders, the, the shareholders/directors say they were innocent of the wrong-doing perpetrated by the GMD; they had a hands-off role (complying with CBK rules for non-executive directors), and that their external auditors and the Central Bank were lax and should have flagged the 13 year fraud. The shareholders of the bank were optimistic that a strategic investor would buy the bank within 12-18 months of reopening. But it’s not clear if NIC has been selected to do that by the Kenya Deposit Insurance Corporation (KDIC). NIC will also assume the majority of IBL staff and branches, and announcements on the way forward will be made in the near future. 

Imperial Bank logo

  • NIC will pay Kshs 1.5 million to all depositors. Thereafter, it is expected that at some point, NIC will pay any remaining depositors about 40% of their proven deposits (there are individuals and institutions who had tens or hundreds of millions of shillings as deposits) (Last year, KDIC used KCB and Diamond Trust banks to refund Kshs 1 million to each depositor at Imperial Bank)
  • NIC will get access to operate the 26 branches in Kenya. But the 2015 bond information memorandum noted that Imperial owned no property. The Bank owns no Properties. It leases all the premises used for its business operations. In Uganda, the 5 branches there were disposed of in a sale.
  • It’s not clear how many of the 600 employees at Imperial are still around, waiting for jobs
  • The CBK statement notes that a forensic audit is almost complete. This is an exercise that the directors of the bank began after the GMD died to determine the extent of the hole in the bank.
  • Court cases will continue and KDIC will retain other assets of the bank (, collateral, government securities, loans..)
  • If it heads to liquidation, the name Imperial Bank (name) will disappear.

$1 – Kshs 101

When Bankers own Banks

Managers and employees are often given a chance to become part owners in the banks. This ‘aligns their interests’ with the institutions and gives them an added incentive to help the institutions do better as it individually rewards them for the good performance. The incentives are usually facilitated through employee share option schemes (ESOP’s) which convey some tax benefits and discounted buying prices. Typically, in conventional ESOP’s,  there a general pool for all employees and another for senior managers.

The method of calculation and award of these benefits is done in secrecy, usually by board committees. This is to ensure the privacy of employees and security of their families, but one outcome is that any revelation of these perks sparks a lot of interest.  In fact, you sometimes find a higher level of disclosure of compensation practices at listed banks in Uganda and Rwanda, than you do with Kenyan ones.

Stanbic Uganda compensation guide

Consider these examples:

CBA: Shareholders include a ESOP who own 2.5%.

Chase Bank: Employees of the bank own  4.3% of Chase through an ESOP. Elsewhere a bonus to the former chairman was one of the deals that the auditors queried in 2015.

Cooperative Bank: Stories about shares to bank management and directors first surfaced in 2008, ahead of the IPO in which bank staff got 9% of the shares. and has been on twitter this year. The company’s accounts show that the CEO owns 2% and the bank links the story to a smear by a former CEO who has an ongoing tax case with the bank.

Equity Bank: CEO owns 4%, while an employee ESOP owns about 3%.

Jamii Bora:  The CEO own 1% and is also an investor in the largest shareholder of the company.

Family Bank: In 2011, shareholders voted in an ESOP for managers and a transfer of 1 % transfer of shares of the (then-new CEO , which he purchased at a discount as part of his employment package.

Housing Finance: Has has an ESOP since 2006 that’s open to  all employees: Eligible employees pay for the units by cash at a price determined by Trustees either in full or by instalments until price is paid in full. The Unit holder is not allowed to sell, transfer or otherwise dispose of Units registered in his name to another Unit holder or to any third-party whatsoever.

KCB:  When KCB CEO Joshua Oigara declared his wealth (assets of Kshs 350 million comprising land, buildings, motor vehicle, cash bank balances and shares) and salary (with allowances that totaled  Kshs 4.9 Million a month),  last year his statement added that  “..My public declaration is driven by the need for us as private sector players to initiate greater transparency. Kenya is bleeding from corruption mainly driven by secrecy in organizational operations..”

$1 – Kshs 101.

Forensic Audits and other Peculiar Kenyan words

One of the most used phrases this year has been forensic audit. But many people don’t understand what these special audits into past matters and closed files are,  or how they differ from regular / normal / annual / other audits.  e.g. MCA’s in Nairobi and Mombasa have asked for a forensic audit to look at car loans and imprest at their respect county assemblies.  Audit Files

One of the reasons why the public knows the  phrase “forensic audit” is because quite a few have been done, or are still ongoing this year, but are already in the news:

  • To investigate the losses, and revenue leakage, at Kenya Airways (The Board requested, and this was done by Deloitte)
  • Chase Bank – the Receiver Manager & Central Bank of Kenya have asked for one look at director borrowings and other factors in the shut down of the bank earlier this year.
  • Kenya’s auditor general has said he will do one to look at the proceeds of the 2015 Eurobond and his teams will travel to the US and UK to question bankers there about the deal, which opposition politicians have made allegations about.
  • Imperial Bank directors asked for one to look into hidden transactions at the bank after their Managing Director died (A report done was done by FTI Consulting)
  •  It’s been reported that all Kenyan banks have been asked to conduct external audits on insider loans.
  • One was done to review management decisions at Mumias Sugar (Report done by KPMG)
  • President Kenyatta has asked for one to look at how funds for Free Primary (and Secondary) Education have been used.
  • At Safaricom to look at recent procurement  (The CEO requested and a report was done by KPMG).
  •  At Uchumi to look at actions of the previous management (The Board requested, and a report was done by Deloitte).

Besides forensic audits, other peculiar Kenyans words & phrases elevated this year include sponsor, covenant, mood, lacuna, slay, blessee,  watershed, and “it is well noted“, “sent as received”, “major key alert”, and “Insert Inspirational quote”.