The Grand rip off

Was Grand Regency sale a State to State transaction?

The Central Bank of Kenya Governor maintained that the sale of the Hotel was in consequence of an agreement arrived at between the governments of Kenya and Libya.

He said that a Memorandum of Understanding, which was the outcome of a visit by the President to Libya from 4th to 6th June, 2007 had been sent to him by the Kenyan Embassy in Tripoli, Libya.

In the MOU, he said, there was an expression of desire in both countries to intensify cooperation in trade and investment, education, scientific and technical cooperation, transport and communication.

There was a reference in the MOU to an expression of interest by Libya African Investment Portfolio (LAP) inter alia to purchase the Grand Regency Hotel, which the Government had agreed to consider.

However, what appeared to have enhanced the importance of this MOU, according to the Governor, was that he was contacted by a Protocol Officer from the Ministry of Foreign Affairs, who sent him a Press release on the Libya visit.

The officer later told him that the Libyan Ambassador wished to call on him, which the latter did on September 11, 2007.

The Ambassador expressed an interest by Libyan investors to invest in Kenya in general and also in the hotel, and indicated that a delegation from LAICO would make a follow up meeting to discuss their interest in the hotel.

On account of the circulation of the MOU, contact by the Protocol Officer and the above visit, the Governor claimed to have concluded that they had agreed to sell the hotel to the Libyan investors.

The Governor said that LAICO was a government company in Libya under LAP and was registered here as LAICO Kenya Ltd.

Later, however, he attempted to clarify that LAICO was a Libyan Government Company by saying that LAICO was a subsidiary of LAP in Libya and LAICO was also registered in Libya.

However, it is important to note that no representative of the Government was present at any of these meetings, and only CBK officials were present.

The ambassador did not attend any of the subsequent meetings that were held between CBK and the delegations from LAICO.

Despite such a strongly professed belief of this being a Government to Government transaction, the Governor refused to accept that the Registration of Settlement of April 9, 2008 in H000 No. 111112003 and the Consent Order of April 14, 2008 in HCCC No.589/99 had made the hotel the property of CBK.

KACC had verbally and in writing advised the Governor that the Registration of Settlement of April 9, 2008 had transferred the ownership of the hotel to CBK, but the Governor insisted it still belonged to UHDL and, therefore, was determined to sell the it through UHDL or through the exercise of CBK’s statutory power of sale.

On his own admission, the Governor said that no Government ministry had been invited or involved during the meetings with the Libyan delegations.

Lands Minister James Orengo said he had no knowledge of what was taking place. According to Mr Orengo said the proposed sale of the hotel had never been considered or discussed by the Cabinet, as would be the case in such circumstances.

He said that if the sale was a Government to Government transaction, the Attorney-General or his office would have been involved. In our view, there was no convincing evidence or incident which could have given reasonable ground to consider this a Government to Government transaction.

Was deal transparent?

The term transparent is here used to connote decisionmaking and actions that are open and accountable as opposed to those that are mired in secrecy and opaqueness.

The emphasis on speed and confidentiality was unusual and unprecedented to such an extent that the need was felt for a person no less than the Director, Governors office, Mr Abuga to personally accompany Mr Adan, advocate for the purchasers, LAICO, to the Lands Office when the documents were presented for registration.

Mr Abuga, apart from his other managerial duties, was the Board Secretary and in charge of Legal Services with several advocates working under him.

The reason for the apparently unusual behaviour on the part of Mr. Abuga is given by him, that he was following the directions given by the Governor himself.

His presence at the Lands office during the valuation, payment of the stamp duty and finally registration of the transfer was clearly to ensure that secrecy, confidentiality and speed were strictly ensured. We agree that the sale and registration of properties conducted by advocates are normally undertaken and finalized with a certain amount of confidentiality, but there nothing abnormal in that type of secrecy or confidentiality.

No one wants his affairs to be made public and an advocate is expected to take care that the affairs of his client are not revealed to strangers But it is hardly likely that a advocate of Mr Abuga’s standing will personally take a transfer document to the Lands Office for the purposes of registration and virtually spend two or three days there with each of the officers concerned to ensure that the work involved in the registration proceeds at speed, without interruption and in absolute confidentiality.

The level of secrecy in this transaction was such that even routine correspondence like that applying for consent to transfer and charge the Hotel were boldly marked "TOP SECRET AND CONFIDENTIAL" (Ex 82 Vol 2N).

As for the statement made by the minister in Parliament, the Governor said that statement was based on the same facts on which his press statement of April 22 2008 was made.

The Governor further stated that he had briefed the Prime Minister verbally on April 23 2008 when he handed him the Confidential Brief.

On the sale of the Hotel the Governor said that as chargee CBK was keen on ensuring the following:

(a) that sale is conducted within the relevant laws and concluded expeditiously

(b) that the Hotel is sold as a going concern in order to protect the jobs of the more than 400 Kenyans working at the Hotel.

To achieve the above purposes the Governor said that CBK had the following two options;-

(a) Sale by Public Auction: This, the Governor feared, would have entailed the services of an auctioneer who would also have been entitled to his commission based on the sale price. Further in a Public Auction without any prior negotiations between the parties it would not have been possible to sell the hotel as a going concern.

(b) Sale by Private Treaty by CBK as the Chargee: CBK as the chargee found this the more advantageous option of the two for reasons which the Governor gave as follows:

(i) On the basis of the valuation reports of the three valuers CBK was in a position to negotiate a sale price which was considerably higher than the current open market value of the Hotel.

(ii) The Hotel was to be sold as a going concern and hence the security of the jobs of its over 400 employees would have been ensured.

(iii) CBK would not be obligated to make any warranties to the purchasers in respect of the condition or suitability of the property for any purposes whatsoever.

(iv) There was agreement on the terms and conditions of the sale and therefore the transaction would be carried out in a very amicable and expeditious manner.

For the above reasons the Governor said that CBK had opted to sell the Hotel by private treaty.

Sold at undervalued price?

The Governor said that at the start of the negotiations he had asked for a price of US $53 million for the Hotel but he could not explain from where he had obtained this figure. He was asked why not US $55 million or US $60 million.

His explanation of how he had arrived at his initial asking price of US $53 million was not credible. He said he had added the highest figure to the lowest figure of the three valuations and that came to US $53 million.

The highest valuation before him was from Ark Consultants Ltd, which at Sh70 to the US dollar was equivalent to US $31 million and the lowest valuation was from Value Zone Ltd and was equivalent to US $23 million. But added together the total of these valuations would come to US $54 million and not US $53 million.

In any case if the intention of the Governor was to use the valuation figures to arrive at an average value then the correct arithmetic should have been to divide the US $54 million by two, or to have added up the three valuations and then divide the total by three.

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