Covid-19 effects push big firms to the brink of collapse

Long before President Uhuru Kenyatta’s administration prioritised building low-cost housing, Home Afrika had ventured into the largely untapped field, growing from a small investment club in 2009 to a real estate juggernaut four years later.

By 2013, when Home Afrika listed on the Nairobi Securities Exchange (NSE), the firm was estimated to be worth at least Sh10 billion.

And when President Kenyatta strolled into office for a second term in 2017 with a promise to partner with the private sector in providing low-cost homes, the future looked bright for Home Afrika, which had made back-to-back losses since listing on NSE.

While the firm was struggling, increased revenues meant that Home Afrika could become profitable. The Kenyatta administration added the right ingredients into the stew that is Kenya’s economy.

Armed with all the experience in putting up affordable houses, Home Afrika set out to build the Sh11 billion Samara.

At the mercy of courts

But today Home Afrika is at the mercy of courts, as it fights off four insolvency petitions filed by Togolese-owned lender Ecobank, which is claiming Sh983.5 million in unpaid loans.

Ecobank filed insolvency petitions against Home Africa and its subsidiaries – Tulip Trustee Company, Home Africa Communities Ltd and Linyanti Ltd – for failing to pay the disputed loan.

The bank lent Home Afrika Sh400 million, which was to be spent on putting up 300 housing units in Migaa, Kiambu County, called Moru Ridge.

But by 2018, Home Afrika was unable to keep up with loan repayments, and Ecobank opted to auction the houses.

The best bid in the first auction in 2018 only elicited a Sh300 million bid, yet experts had placed the lowest possible sale price at Sh525 million.

Despite securing court orders allowing the auction, Moru Ridge has been difficult to sell with the urgency that Ecobank had.

Purchasing power

Selling during the Covid-19 era is even harder, as fewer Kenyans have the purchasing power.

The lender claims that the best price it can fetch for Moru Ridge is Sh645 million, while interest has pushed the loan balance to Sh983.5 million.

Home Afrika insists that the 14-acre land hosting Moru Ridge is worth Sh910 million, meaning the developments will push the total value of the property well past Sh1 billion.

The developer wants Ecobank to auction Moru Ridge and settle the outstanding loan.

The developer’s subsidiaries argue that their guarantees for the loan were extinguished by Ecobank’s initial decision to auction Moru Ridge.

The three firms argue that the insolvency proceedings are part of a blackmailing attempt by Ecobank to have Home Afrika enter into negotiations on resolving the standoff.

Home Afrika and its subsidiaries want the courts to dismiss the insolvency proceedings.

“Ecobank’s use of these insolvency proceedings is deliberately provocative and extortionate. Left unchecked, Ecobank shall proceed with these proceedings to the detriment and eventual ruin of the applicant as its reputation and credibility (will be) irredeemably eroded and its business prospects will be shattered,” Home Afrika and its subsidiaries argue.

Consistently made losses

Home Afrika has consistently made losses since 2015. But its worst year was 2019, when it made a Sh888 million loss.

And while Home Afrika does not expressly say in court papers that Covid-19 has hurt its business, its compatriot in the real estate industry, Cytonn, has come out to say the environment has been harsh since March 2020.

In trying to stop an investor from filing an insolvency suit, Cytonn has told the High Court that its business was affected and it is unable to repay some investors the money they had expected to receive.

Cytonn’s main business is real estate. It builds residential and commercial units that are sold to the public. Investors are paid their dues from these sales.

Cases against Cytonn

Several investors have filed cases against Cytonn, which they accuse of failing to pay their dividends as expected and, they claim, promised.

One client, George Kirigi Thogo, has filed an insolvency petition against Cytonn for failing to release his expected Sh14.2 million investment.

And as Mr Thogo’s suit was proceeding, Cytonn filed a case to stop another investor, Elmelda Mokaya, from filing another insolvency petition.

Piling more misery on Cytonn, two of its financiers have demanded a full repayment of Sh5.7 billion in loans advanced to the real estate firm.

The financiers are Finnish private equity firms Taaleri Afrikka Rahasto II KY and TT Africa, which have filed separate cases looking to recoup their loans.

Both firms have cited the insolvency petition and disgruntled clients as a sign that Cytonn could fail to repay its loans and now want all assets it and its subsidiaries own frozen pending the determination of the suit.

When Cytonn started operations in 2014, clients and financiers had a lot of confidence in it and they showered it with funds.

Completed projects were signs of good things to come for Cytonn and its founders – Edwin Dande, Patricia Wanjama, Shiv Arora and Elizabeth Nkukuu – who left Britam acrimoniously to set up a competing firm.

Risk losing everything

As of today, Cytonn has collected more than Sh13 billion from investors through its various investment schemes. The investors are, however, on thin ice as they risk losing everything if Cytonn is declared insolvent and subsequently liquidated.

Cytonn is not the only big company to complain about Covid-19 effects hampering business operations.

One of Kenya’s oldest confectionary makers, Britania, is also in court fighting off an insolvency petition.

In its petition, flour supplier Uzuri Foods states that Britania is unable to pay a Sh17.3 million debt that was due two years ago.

In defending the suit, Britania admits to owing the money but promises to pay up once strategic investors come on board and cost-cutting measures are adopted.

The closure of schools and hotels in 2020 to curb the spread of Covid-19 hit Britania hard, as the two categories of institutions represented its biggest clients.

Unpaid debts

Although Britania notes that the pandemic and its effects were just the straw that broke the camel’s back, unpaid debts from collapsed retailers Nakumatt and Tuskys denied it Sh50 million from biscuits sold to shoppers over the years.

The flower industry has not been rosy either since the government imposed partial economic restrictions.

And the effect has seen Meru-based flower company Sunland Roses stare at imminent collapse.

Dutch logistics company Panalpina Airflo BV is seeking to have Sunland Roses liquidated for failing to pay Sh57.8 million that accrued from transporting flowers to other countries.

The statutory demand filed in court does not provide details on when the debt accrued, and Sunland Roses is yet to respond to the suit.

Among biggest losers

But with the flower industry among the biggest losers in Kenya’s economy last year, all players are struggling to keep their heads afloat.

The partial economic shutdown in Kenya and other countries limited the demand for flowers, while making it difficult to export the produce.

In the logistics field, one of the country’s oldest and biggest names, Multiple Hauliers, risks liquidation over a Sh532 million debt owed to Synergy Credit for vehicle financing.

In September, Justice David Majanja will decide whether to proceed with an insolvency petition filed by Synergy Credit in March 2020.

Last September, Justice Majanja suspended the petition for one year to give Multiple Hauliers a chance to get its affairs in order and pay creditors their dues.

The logistics firm had argued that it was expecting funds from strategic investors while putting its house in order.

Creditors who have joined the insolvency petition include Mumbua Mutuku, Laura Jean Sylvester, Galana Oil Kenya, Barbara Jane Belcher, Dry Associates, Andrew Ian Moore Gordon, Victoria Wambui Kagunya, Robert James Scott Gordon, Zahra Mohamed Haji Gordon and Margarethe Gordon.

Others are the National Social Security Fund (NSSF), Weldcut Africa Ltd, Hardev Kaur Dhanoa and I&M Bank.

In asking Justice Majanja for time to reorganise itself, Multiple Hauliers argued that the Covid-19 pandemic had hurt its logistics business.

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