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Poison pill behind East Africa Portland Cement Company woes

OPINION
By Dominic Odipo | March 10th 2014

By Dominic Odipo

Kenya: Follow the money. Do you remember how this simple line led all the way to the resignation of former American President Richard Nixon following the Watergate break-in in the 1980s? And do you remember how cash dividends not paid immediately resulted in cash surpluses on the cash flow statements that we used to prepare?

Reaction

Follow the money. This is how one former year-mate at the Faculty of Commerce, UoN, responded to our piece of last week: “I have just finished reading your piece in the paper today on East Africa Portland Cement Company with growing alarm and interest. Follow the money. There is definitely something underneath this.

“Those who are focusing their lens on the Chinese railway deal might do much better focusing it nearer home. Follow the money; and keep scratching. It will soon become clear.

“You will get a very good lead if you go back to the Articles of Association of this company, particularly the part on the modification of rights, which reads as follows: ‘Subject to the provisions of section 62 of the Ordinance, all or any of the rights or privileges attached to any class of shares forming part of the capital for the time being of the Company may (unless otherwise provided by the terms of issue of that class) be varied with the consent in writing of the holders of three-fourths of the issued shares of that class, or with the sanction of an Extra-ordinary Resolution passed at a separate General Meeting of the holders of shares of the class.

To any such separate General Meeting the provisions of these Articles as to General Meetings shall mutatis mutandis apply, but so that the necessary quorum shall be three persons at the least holding representing by proxy one-third of the issued shares of the class, and so that any holder of shares of such class present in person or by proxy may demand a poll.’”

Could there be some poison pill buried in this section of the Articles of Association, which could lie behind the recent proceedings at the board of EAPCC?

Action

Acting under the Capital Markets Act cap 485 of the laws of Kenya, the Capital Markets Authority, the market regulator, recently ordered the company not to implement all the resolutions that had been reached at its last General Meeting.

In response, the company went to court, saying it had a constitutional right to administrative action from the Capital Markets Authority that is expeditious, efficient, lawful, reasonable and procedurally fair. In a formal affidavit, the company’s agents stated that on the 18th of December 2013 the Capital Markets Authority wrote to the company demanding to know inter alia whether a poll had been requested during the just ended AGM.

They also stated that the Capital Markets Authority wrote yet another letter deliberately delivered to the company on the 19th of December 2013 at 3.34pm demanding a response “at the earliest and in any event by the close of business on the 19th of December 2013; that the delivery of the letter and demand for a response made it impossible for the company to respond within the deadline imposed; and that, even worse, the Capital Markets Authority in the last line thereof proceeded to impose a draconian and unconstitutional administrative action stopping the company from registering the resolutions with the Registrar of Companies or implementing the resolutions.

“Regarding the resolutions which were passed at the AGM, I can confirm that by the time I received your letter, I had circulated the resolutions to you, to Nairobi Securities Exchange Ltd and to the Directors of EAPCC.” What we have here, in short, is this. With reference to this EAPCC board business, three government organs: The Capital Markets Authority, the Treasury and the NSSF appear to have been working in tandem to achieve certain objectives.

Objectives

What exactly are these objectives, and how many people in Government are today in a position to instruct all these organs to act accordingly?

This is the question still hanging over the board of EAPCC. Industry insiders now allege that there is an intricate plan for a group of powerful local individuals to take over the controlling interest in the company, but that this plan is being effectively opposed by some of the minority shareholders on the board.

There are not many individuals within Government who can order such top government organs to act in concert on any issue.

That is why the lens is beginning to focus on some of the country’s top political figures and civil servants.

Follow the money.

The writer is a lecturer and consultant in Nairobi.

[email protected]

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