Graham Shaw headed straight for a beer after the end of a key meeting. It was not just one.
It was understandable. On Friday afternoon, last week, Shaw, the Amana Capital chairman, could finally breathe a sigh of relief after the investment firm overcame a liquidation vote of the Amana Shilling Fund.
Had investors voted for liquidation, it could have sparked a chain of reactions that would have affected the entire Amana Capital as well.
At the intense Friday Extraordinary General Meeting (EGM) that went on for more than three hours, a lot, including the future of the tier-three lender, Jamii Bora Bank, was at stake.
Tempers flared as furious investors walked out. At some point, the fund managers were certain that the EGM would have to be cancelled. The asset manager is now staring at a Sh255 million hole, following the collapse of the retail giant Nakumatt, where it had bought commercial papers.
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The fund’s only other investment is the fixed deposits they had invested in the troubled Jamii Bora Bank, which Shaw put at Sh185 million. “If we went into liquidation and it’s (shilling fund) gone, then we are dead,” Shaw warned investors.
If liquidation would have happened, then investors in the shilling fund would only get 40 per cent, meaning 40 cents for every shilling from the Jamii Bora Bank investment.
“We only have Sh185 million to share among everybody,” Shaw told the jittery investors. As one investor at the EGM put it, Jamii Bora and Amana are “joined at the hip,” a liquidation decision would have spelled trouble for the struggling lender.
Jamii Bora would have had to start sourcing for the Sh185 million to pay the fund’s investors. Shaw pleaded for an extension of the moratorium on freezing of funds for a further six months to source for capital.
He revealed that talks were at an advanced stage with a strategic investor whose capital injection would breathe new life and estimated a 75 per cent success rate.
“Liquidation would mean that the strategic investor pulls away. We as a fund manager with the trustees looking for an investor to come and buy in the value of the company which is the licences and the reputation we have,” Shaw told Financial Standard after the meeting. My objective is to get all their money back. We are looking at a full recovery,” he added.
Of the Sh278 million of the total fund, investors worth Sh218 million voted for the extension and creation of Class C share, where any other funds received will be used. Shaw assured that the other funds with Jamii Bora were safe but needed six months without anyone redeeming it.
He was worried that if the liquidation happened, then the blowback would be detrimental to the overall Amana Capital that boasts of 1,400 investors.
Mr Shaw feared that the clients in various funds managed by Amana could have started withdrawing from the fund. “My concern at the moment is if we don’t get support from the regulators, the Amana Shilling Fund will go into liquidation and it will impact the other fund managers, we’ve got to be quite careful,” he said.
Aside from the strategic investor, Shaw said talks were ongoing with trustees on how to secure Sh50 million capital injection. Amana Capital shareholders had put in Sh10 million.
Investors demanded a chronology of how the fund had found itself with the hole or if anyone had misled it into investing in the Nakumatt papers. Some investors alluded that there had been internal collusion as others demanded the corporate restructuring of Amana Capital.
According to Shaw, the fund had invested more than Sh500 million in Nakumatt papers at one point but he said that once he found out about the problems they recovered Sh140 million until Nakumatt stopped repaying.
“All I was doing was running to Industrial Area to meet Atul Shah, who promised and promised. We recovered about Sh140 million,” Shaw told Financial Standard. “We were paying redemption based on Nakumatt's ability to recover, but they never did... we were paying from other investments so we have this hole of Sh255 million,” explained Shaw.
Peter Kahi, the court-appointed Nakumatt administrator, said investors in the Nakumatt commercial papers lost Sh4 billion, which they would never recover.
As a fund manager, Shaw vowed to avoid commercial papers again. “We’re never going to touch commercial papers again,” he said.
The Nakumatt commercial paper was under private placement, hence it was never regulated by the Capital Markets Authority (CMA), thus investors had no protection.
Shaw said the buck stopped with the regulators. “The financial sector in this country needs to wake up because they need to be ensuring there is no lack of confidence,” he said.
Nakumatt’s death has been a source of agony for many, with the retailer sinking with Sh38 billion of creditor’s cash. Shaw said Nakumatt had brokers - Dry Associates - who recommended investing there, but does not believe they were misled.
According to Shaw, when Nakumatt went under receivership, the Shilling Fund was split into Class A and B, with 30 per cent of the Fund in Class A, and was frozen.
Class B would be the other 70 per cent, which would be used to build a business to find a way out of the Nakumatt mess, but which never happened.
“But because of Nakumatt redemption in the other investments, we were taking out to pay redemptions which in hindsight we shouldn’t have done. We were hoping to grow the business because we had social media and a whole load of activities going on. Sadly that strategy didn’t come to fruition,” he said.
He was confident about the shilling fund, noting that trustees had the responsibility to resolve the mess.
The Amana Capital boss noted that they had spent Sh20 million in upgrading systems and preventing future loopholes. “We want to make sure this never happens again. We are now fully integrated through information technology,” said Shaw.
Shaw, however, said internal investigation was ongoing to establish what happened.
A sacked employee might be soon facing charges. “There are certainly internal investigations being done, one to find out what exactly happened in addition to undertaking some legal advice on how to recover monies that were lost in Nakumatt,” he said.
The vote also saw the creation of class, with any money coming in being used separately.
The meeting saw the appointment of three investors in the fund to represent the rest in observing what happens in the next six months. In the vote, out of the Sh278 million total value of fund, investors worth Sh218 million agreed for the moratorium.