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Third time lucky? Amana CEO makes fresh stab at saving firm

FINANCIAL STANDARD
By Wainaina Wambu | May 11th 2021
Reginald Kadzutu, Amana Capital acting CEO.

For the past few years, Reginald Kadzutu and Amana Capital have been joined at the hip.

The source of their shared torment has been the ghosts of collapsed giant retailer Nakumatt, which sank with the investment firm’s Sh255 million.

And any attempts to exorcise Nakumatt’s ghosts have proven unsuccessful so far. A strategic investor touted to pump Sh300 million and recapitalise the investment firm shied away at the last minute.

It was not clear why Sanjeet Thethy, the strategic investor, backed out.

Now, Kadzutu is back at Amana Capital in his third stab at turning around the company.

“My title is Interim Chief Executive Officer; I’m here just to turn it around. I have given myself three years,” Kadzutu told Financial Standard recently on his return at the investment firm.  

In February last year, he appeared before anxious investors to explain how their money put in Nakumatt commercial papers would be recovered.

This was at a testy Extraordinary General Meeting (EGM) of investors in the Amana Shilling Fund, which overcame a liquidation vote that would have impacted the future of the entire company.

Withdrawals had been frozen and investors faced losing their money, with the fund’s only other investment being Sh185 million fixed deposits put in the troubled Jamii Bora Bank (now Kingdom Bank).

Kadzutu, however, explained that there is a misconception that he was part of the team that made the decision to invest in Nakumatt.

He had worked in Amana before for four years between 2008 and 2012 and then left for tech firm Craft Silicon.

Kadzutu rejoined the fund manager in 2018 after it had already invested in Nakumatt in 2016. His return, he insisted, was “to clean up the  Nakumatt mess.”

“The reason I actually came in was to sort the Nakumatt issue. I advised the firm to inform people they had invested in Nakumatt. I was the one who held the first EGM.”

He said he was also the one who notified the Capital Markets Authority (CMA) of the ill-fated investment and froze withdrawals by anxious investors.

His second stint at the firm, however, was short-lived and left for rival Zamara in August 2019.

“The framework of what they needed to do was already in place. I’d done my job to freeze it and let it be known to everyone and gave the solutions,” he said. Now, Kadzutu says Amana Capital is “aggressively” following up on the Nakumatt investment.

“We believe someone should be held accountable, and money should not be lost,” he said.

The CEO said they are pursuing legal routes but is quick to add that the intention is not to “recover everything.”

“Atul Shah is not broke,” deadpanned Kadzutu.

He pointed an accusing finger at the market regulator, CMA, arguing that it could have done more to protect investors.

“If the authority were really after protecting investors, they’d go after Nakumatt and manage to get that Sh4 billion... they have the capacity,” he explained.

Commercial paper holders are part of the unsecured creditors and at the bottom of the food chain when it comes to any funds that would be recovered from Nakumatt.

The investment firm is part of investors who lost a total of Sh4 billion after buying Nakumatt’s commercial papers.

Nakumatt went down with a Sh38 billion debt, with the unsecured short-term debt instruments it had issued to about 800 institutions going up in smoke.

Kadzutu is well aware of the implication of the nature of the debt and said they’ll “pursue other avenues that may benefit us.”

Charting a recovery for Amana Capital saw 59 per cent of funds in the Amana Shilling Fund written off and substituted for a 30 per cent equity stake in the firm, which was part of the AGM resolutions.

The 30 per cent equity shares will be issued “proportionally” to individual holdings of funds lost in the fund.

They will also take up board seats. Liquidity has been one of the challenges for the investment firm.

Kadzutu said the fund not only had money in Nakumatt and JBB but had “deposits all over.”

The third tier bank was also facing liquidity problems. Early last year, Last year, Co-operative Bank completed the acquisition of 90 per cent of the troubled bank.

Only one fund had invested in Nakumatt and JBB.

The other funds by the investment firm include the Amana Growth Fund, Umbrella Fund and the Balanced Fund, which were not affected.

He said by December last year, Co-op Bank had paid the whole amount.  

This coincided with his return to the firm. “We paid and are still paying others,” said the CEO. “This shows the element of putting effort into trying to make sure that people get their money,” he added.

Kadzutu said legally, they could have written off the hole created by Nakumatt but “mistakes happen,” hence the option to convert the debt into equity.

 “Once you write off, all is lost. But in this new arrangement, what you are losing is liquidity,” This will see investors get dividends after turning the firm around and doing a share buy-back, according to Kadzutu.

“Our plan is that in two to three years, we can buy back those shares and definitely compensate for the interest that you’d have otherwise earned over the period,” he said.  

He said the valuation and allocation has been done, and lawyers are now working on changing the company from a private to a public entity, with the shareholders now set to rise to 1,000.  

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