Why KAA risks losing land in suspect deal

By Njiraini Muchira

Details have emerged on how a murky deal masterminded by a Nairobi businessman could make the Kenya Airports Authority (KAA) lose prime land.

Mr Peter Muthoka, the man at the centre of the CMC Motors saga, secured Sh510 million in April 2010 from Standard Chartered Bank using the land as security without disclosing the terms of the financing facility to KAA.

At the time, KAA had no information on the loan period or repayment terms. As a result, the State corporation risks losing the land within the cargo terminal area at the Jomo Kenyatta International Airport.
Land lease
Through his company, Transglobal Cargo Centre, Muthoka secured the loan on the basis of a 60-year lease granted on the land KAA owns.

Documents in our possession reveal Transglobal now wishes to borrow an additional Sh350 million using the same land as security, and is seeking consent from KAA.

The deal has effectively exposed KAA to the possibility of losing the land in case Transglobal cannot repay the loan.
Alternatively, KAA would have to take over the loan to save the land because it was kept in the dark on the nature of risk assumed by Transglobal was concerned.

“The charge documents do not disclose the terms of the financing of the facility and therefore the Authority has no information on the loan period, repayment terms, conditions for drawdown,” states a letter by KAA lawyers addressed to Joy Nyaga, KAA acting company secretary.

Moreover, the letter seems to question how KAA agreed to the long-term lease on the land with limited options to terminate it.
According to the lease agreement that commenced on October 1, 2008, Transglobal was granted the land for an initial period of 20 years and automatic extension for another 20 years “without the requirement for the tenant (Transglobal) to express any intention to have the initial term extended.”

Lack of response
The agreement further states KAA shall grant Transglobal a further 20 years meaning the lease can extend to 60 years at the option of Transglobal. Calls to Peter Muthoka’s cellphone went unanswered.
Besides, KAA agreed into the long-term concession without taking into account that Transglobal could fall into financial difficulties and be liquidated or restructured.

“The authority has no right to veto the transfer of shares in Transglobal to third parties. For 60 years, the power of decision making over the part of the Authority’s land has been handed over to persons who are not under the Authority’s control,” states the letter.

Transglobal Cargo, which is licensed by KAA to provide cargo handling services at JKIA, procured the loan in 2010 ostensibly to construct a cargo handling facility at the airport on a build, operate, transfer (BOT) arrangement.
Although naturally at the expiry of the lease KAA would inherit the new building, this is not a guarantee.

“The Authority does not appear to have rights to acquire the fixtures, plant and equipment, which form the core of the cargo handling business,” states the letter by Albert Mumma and Company Advocates, commissioned by KAA to investigate the transaction.