How English Point owner attempt to woo new KCB CEO over Sh5.2b loan flopped

Soon after Paul Russo had been confirmed as the new CEO of KCB Group in May last year, some of the listed lender’s customers, especially those who had a tiff with his predecessor Joshua Oigara for defaulting on their loans, lined up to pay homage to the new boss.

Among this symbolic delegation was Nazir Jinnah, a director at Pearl Beach Hotels which owned the Mombasa-based luxurious property English Point Marina.

KCB had threatened to seize English Point over a Sh5.2 billion loan.

The English Point Marina, which was designated as a Vision 2030 project, Kenya’s long-term development blue-print, included some 107 luxurious apartments for sale, eight penthouses and 26-room hotel.

However, after the completion of the mixed-used development in 2017, Pearl Beach was unable to repay the loan, forcing KCB to place it under administration in June 2022.

Also Read: Family feud puts English Point Marina in jeopardy

The result has been a bruising court battle between the Kanji family, who own Pearl Beach Hotels, and KCB in a fight that culminated in the bank seizing the family’s second hotel, Diani-based Pinewood Beach Resort and Spa, amidst an uproar from the hospitality players. 

 In a letter to Russo dated March 10, Nazir disclosed that he had already met the new CEO in a bid to persuade him to end the “expensive legal proceedings that only serve to enrich our advocates and receiver.”

“Please accept our formal congratulations on your recent appointment as the Group Chief Executive Officer,” said Nazir in a letter seen by the Daily Nation.

Nazir is one of the owners of English Point Marina. Others are Amin Kanji, his wife Leila, brother Alnoor and sister-in-law Nafisa.

“It was a pleasure meeting with you for the first time at my request and am grateful to receive your kind hospitality aimed at opening a dialogue towards resolving the ongoing court matters between Kenya Commercial Bank and Pearl Beach Hotels Limited,” he added.

Also Read: KCB seizes English Point Marina over Sh5bn debt

Nazir’s hope when he met Russo was to forestall an escalation.

In the new man at the KCB’s corner office, Nazir detected an opportunity to rekindle relations and save his multibillion shilling business from a forcibly takeover.

He was wrong.

 With KCB’s non-performing loans (NPLs) dangerously rising above the industry levels, Mr Oigara had earlier embarked on aggressive recovery, charging after defaulters like an enraged lion.

It is not just Pearl Beach that found itself on KCB’s cross-hairs, Mumias Sugar, and DALC Aviation are some of the other firms that KCB Group had placed under statutory management as it sought to bring down its NPL ratio.

When Russo made his first investor briefing in August last year, three months after replacing Oigara, it was clear that he was not going to stray away from his mentor.

The husky-voiced former CEO of National Bank made it clear that his key performance index would be to reduce the bank’s NPL ratio which had jumped to 21 percent in the first half of 2022.

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“This is the highest it can be. I have worked through my projection. And I am very sure we will be within the 15 and 17 percent range the next time we meet,” said Russo in his first briefing when the bank announced the financial results for the half year ending June 2022.

Nonetheless, Nazir, in an 18-page “Settlement & Financial Restructure Proposal,” put forward a case for yet another reprieve.

He first recalled how it all started.

In 2010, KCB advanced Pearl Beach a loan of Sh2.66 billion to construct and develop a fully-serviced, multi-user, commercial and residential real estate business in Mainland North in Mombasa.

Popularly known as English Point Marina, this mixed-use development had the markings of everything luxurious.

It had 107 luxurious apartments, a 26-room boutique hotel, restaurants, meeting rooms, Spa & Gym and, the icing on the cake, East Africa’s first floating pontoon marina.

But its development would be beset by numerous construction and financial challenges, including frustration by KCB intermittently issuing instructions to the company’s contractors to stop any further construction under the suspicion of fraud, said Nazir.

This, the firm believes, led to the loss of buyer confidence, with only 42 confirmed apartment sales generating Sh2.4 billion to offset the KCB loan.

Another 65 apartments worth Sh3.8 billion, Nazir said, were never sold.

In total, the company intended to achieve cumulative sales revenues amounting to Sh6.75 billion.

Due to these challenges, Pearl Beach was forced to enter into a number of restructuring agreements. The first one was on January 26, 2017 which saw all credit facilities amalgamated into a single term loan of Sh5.2 billion.

This loan had an interest rate of one percent per annum. KCB also gave Pearl Beach an 18-month moratorium on principle. However, the hotel was required to service the interest payment monthly during the moratorium period.

The second restructuring was done in June 2020 with Pearl Beach being given a six-month moratorium on both principle and interest.

Additionally, as part of the agreement Pearl Beach Hotels was also required to get a strategic investor to inject Sh3 billion in equity to be used to reduce the outstanding debt by Sh893 million.

“While noting KCB’s extended kindness towards the realization of the above Vision 2030 accredited project, there have been notable periods of tumult that have arisen out of the borrower encountering frustrating economic conditions,” said Nazir.

These include the negative effects of the Covid-19 pandemic that impacted the ease of doing business which they say made it difficult for them to repay to service their loan in time.

Also Read: Money laundering claims rock Sh5 billion English Point Marina

Therefore, as part of the proposed settlement, Pearl Beach wanted KCB to reduce the loan amount from 5.2 billion to Sh3 billion payable within 26 months.

They also requested KCB to revise the interest rate charged between 2020 and March 2021.

Naturally, the company also wanted KCB to terminate the receiver notice and instead an executive from the bank appointed as a liaison between the lender and the borrower.

Meanwhile, Pearl Beach directors would hand over procedures and controls of all assets, passwords, accounts and any other property belonging to the company to KCB.

But KCB would have none of it, insisting that despite several reprieves, Pearl Beach had been unable to repay its loans.

Mr Russo, who was expected to be sympathetic, oversaw the seizure of yet another luxurious hotel connected to the Kanji Family.

At the beginning of August, the lender appointed Kamal Anatroy Bhatt as the receiver manager for the Diani-based Pinewood Beach Resort and Spa.

KCB’s argument is that Pinewood was part of the security to the loan taken for the construction of the fully serviced five-star English Point Marina.

Pearl Beach has moved to court over this latest seizure. The ruling will be delivered on September 7.

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