Category Archives: Kenya real estate

Britam vs Cytonn Executives

A dispute between insurance giant Britam and some of its former executives who left the firm and set up a rival investment management firm called Cytonn has been on and off for the last four years. Recently a judge ruled that a criminal case would continue in the courts.

After that decision, Cytonn CEO Edwin Dande issued a personal statement on the long-running case as he set out to absolve Cytonn, which is known for its real estate property developments and financial industry reports, from the case against its four executives who had been at Britam. He writes on the reasons behind the dispute and their departure  which he says was due to insider attempts to destroy a Kshs 5 billion portfolio of client funds that they had brought to Britam (excerpts) :

  • .. the resignation was due to an operating environment that was fraught with illegalities and unethical business practices that we did not agree with…
  • we could not agree to be part of actions such as illegally using client insurance funds to purchase shares of Britam to rescue a failed IPO, we objected to using insurance funds under our management to purchase a failing bank – a transaction that has now led to loss of billions of shillings of investors’ funds..  
  • ..following our resignation, Britam launched a full-scale assault in an attempt to ruin our careers by filing 7 different suits claiming up to Kshs. 9.8 billion in stolen funds… 
  • The suits were obviously malicious and designed to achieve only two objectives: first was to punish the former team for daring to leave as a team, and second was to deter competition.

He writes that his statement was released was to reassure Cytonn’s 500 employees and 3,000 clients who had invested over Kshs 20 billion in various investment products.

Britam has been silent on the dispute other than their 2014 annual report which mentions the litigation; The British-American Asset Managers Limited is the Fund manager of a Limited Liability Partnership (LLP) which has been mandated to invest in property. The LLP loaned Shs 3.9 billion to various third parties to purchase property. The company on behalf of the LLP has instituted legal suits to recover the above amounts plus costs. The court cases are ongoing and we expect that the outcome will be favourable

Both Cytonn’s managers and Britam have separately settled with Acorn that was a partner in the fund-raising plan before the dispute.

EDIT/ Update October 12: The Court of Appeal granted stay orders on October 11, meaning there is no prosecution action against the four Cytonn executives for now.

KPMG on the 2018 Finance Bill Amendments

The President of Kenya signed the Finance Bill 2018 after a stormy debate in Parliament last week that saw chaotic arguments about vote procedure methods used and actual vote counting mainly with regards to VAT on petrol products.

Some of the earlier clauses in the Finance Bill had been highlighted and KPMG, which has done a series of articles,  has provided a further update on aspects of the laws in Kenya and which they termed “..the changes present an unprecedented disruption of the tax regime that will impact the economy and citizenry for years to come.

Their perspective on the signed Finance Bill implications:

  • Excise duty on services: The President accepted Parliament’s decision to drop a Robin Hood tax of 0.05% on money transfers above Kshs 500,000 (~$5,000). But the shortfall was replaced by an increase in taxes on all telephone and internet data services, fees on mobile money transfers, and all other fees charged by financial institutions which all now go up by 50% – and which KPMG writes may have a negative impact on financial inclusion.
  • A national housing development levy was approved. With the country’s wage bill of Kshs 1.6 trillion, KPMG estimates that government can potentially collect Kshs 48 billion a year (~$480 million) from the levy, (Kshs 24 billion of which will be from employers) – a massive amount when compared to the Kshs 12.8 billion that NSSF – the National Social Security Fund collects in a year. Regulations for the National Housing Development Levy Fund (NHDF) have not been set, other than that the payments are due by the 9th of the following month. For employees who qualify for affordable housing, they can use that to offset housing costs but for those who don’t qualify, they will get a portion of their contributions back after 15 years.
  • Petroleum VAT: KPMG says that a significant portion of the government’s tax targets for 2018/19 was dependent on value-added tax (VAT) on petroleum products and that is why they have been insistent on having this implemented. Sectors that supply exempt services such as passenger transport (PSV’) and agriculture producers are expected to raise their charges to customers as they are unable to claim back the 8% VAT tax.
  • Kerosene, which is used by low-cost households, takes a double hit with the introduction of VAT as well as an anti-adulteration tax of Kshs 18 per litre. Already kerosene now costs more than diesel in some towns around the country.

  • Excise duty on sugar confectionery, while opposed by sugar industry groups, was reinstated in a move similar to other countries that are trying to address lifestyle diseases by introducing taxes on sugar products.
  • The betting industry, whose survival which was at stake, gets a reprieve as the gaming and lotteries taxes, introduced on January 1, were reduced from 35% to 15%. Many of the prominent betting companies had scaled back their advertising and sponsorship and had turned to engage in serious lobbying efforts ever since. Also, an effective 20% tax on winnings has now been introduced. The earlier tax law allowed bettors to claim some deductions if they kept records, but that has been removed altogether.

Kenya Finance Bill 2018

In a year in which there were crucial changes proposed to Kenya’s tax system, the National Assembly passed the Finance Bill 2018, but the President refused to assent to it and sent it back to Parliament with his proposed amendments to fuel, banking, housing, gambling and other taxes.

Sectors affected by the memorandum.

  • Banking: For every transaction your bank charges you, currently there is a 10% levy which will now go up to 20%. Also, the fee on money transfer and mobile banking services will be 20% on excisable value – up from a proposed 12.5%.
  • Telecommunications: a tax on telephone and Internet services will be 20%, up from an earlier 15% tax on the excisable value
  •  Food: He proposed reinstating a sugar confectionery tax that parliament had dropped.
  • Fuel; Kerosene will cost the same as diesel after the introduction of an anti-adulteration tax. VAT which Parliament had pushed back by another two years, and which the President wrote would cause a Kshs 35 billion shortfall in this year’s budget. He, therefore, proposed an immediate reinstatement of VAT at 8%. (VAT in the country is levied at 16% for all other goods and services that qualify).
  • Housing: Employers shall pay a new housing development levy on behalf of employees – with the employer’s contribution at 1.5% of salary and the employees at 1.5% of salary – up to a maximum of Kshs 5,000 – to be remitted on the 9th of the following month to the proposed National Housing Development Fund.

Employees who don’t qualify for the low-cost housing proposed will still have their money go to the Housing Development Fund and will get it back when they retire,

  • Gambling: tax reduced from 35% to 15%.

The President also asked Parliament to reduce the national government budget by Kshs 55 billion. Parliament was on a month-long recess but has resumed this week for special sitting sessions relating to the Finance Bill 2018. They received the President’s memorandum on Tuesday 18th September, with the budget committee meeting on Wednesday to review and approve these changes for Parliament to vote on Thursday 20th September.

SGR enters the Nairobi National Park

Kenya’s National Land Commission (NLC) has again published a list of land titles it is seeking to acquire on behalf of Kenya Railways for the construction of Phase 2A of the Standard Gauge Railway (SGR) between Nairobi and Naivasha.

The parcels are in the counties of Kiambu, Kajiado, Nakuru, and Narok. Big winners include Kedong Ranch Ltd as they will be compensated for three huge land parcels (measuring 35.7 hectares, 13.01 hectares, and 100.65 hectares) that were previously listed as being belonging from Morning Side Heights,  Ruaraka Housing Estate, and Morningside Heights respectively. Another is Kiambu Western Grazing Area from who the NLC will purchase 146.8 hectares.

Big losers include the Nairobi National Park which is managed by Kenya Wildlife Services (KWS) and which is billed as the only national park within a capital city in the world which will lose loses 41.3 hectares (about 102 acres) which will be hived from land title – L.R. 10758 that was reserved.  The Nairobi National Park was originally 28,950 acres in 1961 when a 999-year lease was granted to Trustees of the Royal Nairobi Parks. Another loser will be Oloolua Forest 17.3 hectares (about 43 acres) to the railway, at a time when Kenyans are concerned about depletion of forests.There have been news reports that construction work for the SGR has commenced in the Nairobi National Park park in the last few weeks.

Construction through the park had been contested for some time, and back in November 2016, a session was held at the Strathmore Business School where Kenya Railways staff met wildlife conservation groups, and concerned residents, to explain issues like the intent of the government, justification for the SGR, land rights, the railway route, land acquisition cost, feasibilities done, stakeholders consultations, impact on wildlife, environmental and community impact etc.

Alternative routes map from Save Nairobi National Park (“SNNP”)

Athanas Maina, MD of Kenya Railways said that it was not possible to follow the corridor of the old (British) railway, which would not be funded and whose terrain was difficult – and that they had considered seven different routes through which the new railway could exit Nairobi to pass through a crucial tunnel at Ngong. They had settled on a “modified savannah” option and the new SGR railway would loop back from the Inland Container Depot at Embakasi, and go over six kilometers of the Nairobi National Park. This would be achieved by constructing elevated bridges in three stages, and running the railway elevated at an average height of eighteen (18) metres over the park with noise defectors and that construction would be completed in 18 months.

The acting Chairman of the Friends of the Nairobi National Park said that if there was a conflict between conservation vs development,  it is because of a lack of planning and consultation, while another representative spoke of continuous assaults on the Nation National Park over the years with demands for the park to cede more land for construction of the Southern bypass highway, oil pipeline, and fibre cables among others.

Maina said that exact route that the railway would follow remained a secret as many people wanted the line to pass on their land to make money – speculating on land at any cost and waiting for the government project to come – and pointed to the LAPSSET projects that had been derailed demands for land compensation. (Elsewhere it has been reported that landowners in the Konza area got Kshs 3 million (~$30,000) per acre of undeveloped land that was acquired for phase one of the SGR). Another resident said that the park’s main threat was  not the SGR, but individuals who were privatizing land, along wildlife corridors, south of the park for housing and quarrying and cited the Jamii Bora development case

Finally, a letter from Richard Leakey, Chairman of the KWS, was read out in which he said that the SGR would have minimal impact on Nairobi National Park, and mainly during the two years of construction. He added that some conservationists had opposed fencing the southern part of the park for many years because wildlife species migrate through there, and if the railway was laid and fenced there, outside the park, it would cut off wildlife from accessing the park. That ended the debate, that day.

Nairobi Supermarkets & Mall Moments

It has been an interesting few days in the Nairobi mall and supermarkets space.

It started off with a notice on social media from the Junction, a 26,000 square meter mall stating that Nakumatt had surrendered their space at the mall. Nakumatt was the anchor tenant of the mall which opened in 2004 and now has  115 stores.

But Nakumatt which has been having cash flow and supplier payment issues, and which have all resulted in  most common everyday products like fresh foods and supplies missing from their store shelves, then put out a statement alluding to ongoing talks with the Junction mall and their suppliers with advanced plans to restock their shelves.

Later on the same day Nakumatt got a court injunction temporarily stopping their removal from the Junction and issued another more formal statement about how the Junction management had tricked them and illegally took over their space after they had paid Kshs 20 million, hurting their image in the mind of employees, suppliers, and customers.

Knight Frank who manage the Junction also issued a statement acknowledging the court order, which they would follow, but stating that Nakumatt had signed a surrender on 15th September and then failed in its payment obligations and had not documented a commitment to restock the shelves by the surrender date.

Tuesday also saw an announcement by Majid Al Futtaim that they would be opening their third Carrefour store in Kenya at TRM (Thika Road Mall),  a 28,000 square meter mall on Thika Highway. The space had been surrendered by Nakumatt just two weeks before that. Carrefour operates stores at the Hub in Karen and Two River malls.

The release also contained some interesting stats on suppliers and employment:

– We are looking to stock over 30,000 items at the hypermarket, including fresh produce, groceries, a fresh bakery, and a butchery
– (We) work with over 640 suppliers, local manufacturers, producers, and farmers, which contribute to the overall economic growth in Kenya both directly and indirectly. Only one of the suppliers is foreign.
– The opening of the new branch at TRM will boost the staff employment count at Carrefour in Kenya to 800, with 600 already working at the other two branches located at The Hub in Karen and the Two Rivers Mall.

There has been quite a bit of clamour by customers of Carrefour, which was becoming quite crowded at Karen on month end, to expand.

An equity deal to rescue Nakumatt deal seems to have floundered, and a new announcement about ongoing discussions for a management partnership arrangement  between Nakumatt and a rival supermarket chain Tuskys have not inspired the confidence of supplier and financiers of Nakumatt.

Other believed beneficiaries of Nakumatt surrendering any more stores are expected to be Naivas and Khetia. This week also saw Naivas launched Naivas Pay in partnership with Interswitch. The launch was a Ciata Mall, at their store in a space Naivas took over after it had been previously booked by the management of Uchumi.

Uchumi itself is in the process of concluding a deal to raise Kshs 3.5 billion from a  private equity investor.

Another interesting concept in the supermarket space, is Seven 2 Seven, a franchise of mini market stores that only stock fast-moving consumer goods (FMCG) and serve as agents of some banks. They are on track to have 100 stores in Machakos, Kajiado, Nairobi, Kiambu, Muranga, Nyeri, Embu, Kirinyaga, Meru and Nakuru counties by year-end.

EDIT November 30 Majid Al Futtaim announced plans to open its fourth Carrefour hypermarket in Kenya, after taking up the anchor tenancy at the Junction Mall on Ngong Road. The new hypermarket will be opened in January 2018.