Listed property developer Home Afrika has been compelled to refund Sh300 million raised through a failed corporate bond in 2014 further deepening the company's financial woes.
This follows a directive from the Capital Markets Authority (CMA) after Home Afrika was found to have inflated interest rate to make the bond more appealing to potential investors.
Home Afrika had targeted to raise Sh900 million through the bond issuance in 2014 with a return rate of 13.5 per cent. However, the bond managed to raise only Sh301 million after Home Afrika revised the rate of return to 17 per cent.
"By marketing the bond as a partially secured bond and further commencing the process of encumbering the assets of a subsidiary of the Issuer (Home Afrika), and by purporting to revise the Coupon Rate to 17 per cent, the Issuer was in contravention of the terms of approval issued by the authority," noted the CMA.
CMA ruled that the changes, contrary to the information memorandum Home Afrika presented and terms of approval of the ill-fated bond, constitute a deliberate "misinformation or deception" of the public.
The authority has since demanded Home Afrika to refund the raised amount even though the corporate bond was under-subscribed by 60 per cent. CMA has also penalised NIC Capital and Kingdom Securities, the bond advisors for misleading Home Afrika to revise the coupon rate from 13.5 to 17 per cent.
CMA has further suspended NIC Capital's license for three months prohibiting the company from acquiring or attempting to acquire new clients, customers or associates, or engaging in any agreements, contracts or other like arrangements.
NIC Capital, whose sister company NIC Bank was the arranger for the bond, has been accused of misinforming the CMA that one investor had made a subscription of Sh250,000,000 when no such offer had been made.
"Pursuant to Section 11(3)(cc)(ii) and 30G of the Capital Markets Act, an enforcement directive to the Issuer to ensure full reimbursement of all the investors who submitted applications and funds to the offer," stated CMA.
According to Mr Paul Muthaura, acting CEO of the CMA, Home Africa has already complied and ceded the funds even before it could claim them for the intended purposes.
"Home Afrika never received the funds and the money was in the account of the receiving bank and we asked the receiving bank to make the refunds," he explained.
In 2014, Home Afrika launched Lakeview Heights, a mixed use development planned on 96 acres located on Riat Hills Kisumu County targeting an estimated population of 500 homes developed over two years starting 2015.
In the same year, the firm launched Llango, a mixed use development project on a 21 acre piece of land in Tiwi, Kwale County with an estimated capacity of 200 housing units.
The proceeds from the bond were expected to finance these two projects and the under-subscription caused delays and saw the firm's profit after tax falling by 90 per cent, from Sh80 million in 2013 to Sh9 million realised in 2014 financial year.
The firm was forced to obtain a Sh500 million facility from commercial banks to finance it's projects with the CEO Njoroge Ng'ang'a, sent packing last year.
Home Afrika has since issued a profit warning for the year ended December 31st, 2015 indicating that earnings for 2015 will be more dismal than reported in the last two years.