It looks like 2015 has been a good year for the Kenyan branch of South African microfinance lender Real People. In mid-2015, Real People Kenya Limited (RPK) entered the Kenyan financial markets to raise the first of what was to be three tranches of a 5 billion shillings medium-term fixed rate note.
The note was listed on the Nairobi Stock Exchange (NSE) after receiving approval from the Capital Markets Authority (CMA) and published in the first weeks of August this year.
In order to receive AMC’s approval for listing, RPK had submitted a briefing note stating that the purpose of the funds would be to raise capital for subsequent loans to its main clients which were small and medium-sized businesses.
RPK raised 1.6 billion shillings out of the 2 billion shillings targeted for the first tranche. But press reports in this newspaper had started to cause problems in the backyard of RPK’s parents. Real People Investment Holdings (RPIH), the South African parent company, was listed on the Johannesburg Stock Exchange.
However, the Global Credit Rating agency for the second time rated RPIH as “negative” based on a poor loan portfolio and funding risks associated with poor investor appetite, Business Daily reported. July 6, 2015.
Speaking lyrical about the strong potential of the Kenyan subsidiary in light of the upcoming medium term note, the same press report quotes RPK chief executive Daniel Ohonde as saying that “a negative outlook does not amount to change. perspective and will not, in our opinion, affect the adoption of the Real People Kenya bond.
Real People is a separate legal and operational entity and is sufficiently well capitalized to operate on its own. “
Well, somebody in Johannesburg was laughing in the South African Rand on the part “separate legal and operational entity… sufficiently well capitalized blah blah”.
No sooner had investor funds from the bond been recorded in RPK’s Nairobi bank accounts when instructions were sent to transfer the funds to Johannesburg to repay an intercompany loan owed to parent company RPIH, according to the report. a CMA investigation.
Now remember that the funds were apparently raised to allow more loans to Kenya and money to be earned from the interest received in the lucrative microfinance sector (others might say, sometimes usurious) and benefits shared through the reimbursement of interest to bondholders.
RPK’s board of directors, which literally has to sign an information memorandum with its own blood as it promises potential investors that everything said therein is the truth, the whole truth and nothing but the truth, had the responsibility fiduciary to ensure that the promises made on the document have been kept. What were these promises explicitly?
First, that the funds would be used for what RPK said they would use them. Second, investors would be reimbursed based on the success of using these funds.
Well, fast forward to April 2017 when, for the third time, the same agency Global Credit Ratings (GCR) further lowered the ratings given to RPK’s parent company, RPIH. In a report published in this newspaper on April 13, 2017, the agency gave a negative outlook, stating: “This negative rating action primarily reflects a reduction in the manager’s assessment of the financial strength following the recent review. downgrade by GCR of the issuer’s rating from Real People to CCC from BB +.
This is due to a significant deterioration in Real People’s trading results until December 31, 2016 and the strong possibility that the group will not honor its debt agreement relating to the short-term capital adequacy ratio and / or fails to honor its existing debt obligations. “
So this comes two years after the Kenyan subsidiary RPK lifted the bond, sent the money to its parent company to repay an intercompany loan, the repayment of which was most likely needed to support the rapidly deteriorating balance sheet ratios that had been reported by auditors. before.
So, was there a plan that had been devised by the South African parent company on how the subsidiaries could be used to withdraw funds from the base of South African origin?
Next week I will talk about how the CMA had none of this cross-border nonsense and undertook a tough regulatory action that has demonstrated its reach for administrators physically located beyond Kenya’s geographic borders while setting a precedent. good corporate governance.
E-mail: [email protected] Twitter: @carolmusyoka