New Zealand investment banker Stephen Jennings is an international schemer per excellent, a man whose path of international frauds will leave Kenya with a gaping socio-economic wound of incomprehensible magnitude. His grabbing of Tatu City land grabbing and fraudulent sales was a matter of life and death for him.
The boardroom coup that saw Bidco CEO industrialist Vimal Shah, former Central Bank Governor Nahashon Nyagah and businessman Stephen Mwagiru lose a voice in the running of Tatu City project was part of a wider scheme by the New Zealander Jennings to recover the heavy debt and losses he had accumulated in Russia, it can authoritatively reported today.
Jennings thinking was simple. Kick out the Kenyan shareholders, sell of the Tatu City project land as quickly as possible and pay up European and Russian creditors who were breathing on his neck and get out of Nairobi as quickly as possible. To understand this scheme, we will take you to the events that happened in Moscow in 2013.
January mornings are very chilly in Moscow – usually below zero degrees. Such was the weather on January 1, 2013. The weatherman had announced that temperatures would be -2 °C and visibility would be diminished by a heavy fog. It is this gloomy weather that Senior Managers at Renaissance Capital Head Office in Moscow received a disturbing email whose effects would be felt 10,000 kilometers in Nairobi.
Chief Executive Stephen Jennings who founded the company 18 years earlier, holding it steady during the Russian crisis of 1998 and building it into the biggest and most successful bank in emerging markets, had given up on the company and had walked out to start a new life elsewhere.
Jennings resignation was the climax of cataclysmic events in the firm that started at the height of the global financial crisis in 2008 forcing him to sell 50 percent of his stake in Renaissance Capital to Russian politician Mikhail Prokhorov to save the company from bankruptcy.
At the time of the resignation, Renaissance was just a step away from bankruptcy. Technically, the firm was insolvent, servicing debt with more debt. Its cash generating assets had become lliquid at the onset of the financial crisis and its trading income had stagnated in the face of stiff competition from relatively new Russian state-owned banks.
So bad was the financial position of the firm that in November 2012, international credit rating agency, Moody’s downgraded the firm’s ability to service its debts to B3. This was the third negative rating in three years. B3 is the worst credit rating and it means that the firm in question is not in a position to meet its debt obligations.
The firm’s financial woes were self-inflicted. Still reeling from the impacts of the global financial crisis and cash guzzling global expansion, Jennings borrowed Sh115 billion in 2009 from the public through a Eurobond issue to capitalize Renaissance. The proceeds of the bond were to repay an earlier bond of a similar amount that was already weighing down the bank.
Tatu City directors Vimal Shah and Nahashon Nyagah outsmarted by Jennings
With Moody’s downgrade of Renaissance creditworthiness, Jennings lost the last hope of ever nursing the firm back to health. The firm which had posted losses for three consecutive years was still heavily indebted and all indications were that it would be wound up by its creditors.
Jennings was forced to take up responsibility for the investment bank’s woes and remedy the situation by giving up 51 percent shareholding. Jennings shareholding was transferred to Prokhorov who now took full control of the firm.
Breaking the news to the managers in the January email was Jennings long time deputy, Hans Jochum Horn who tried to assure the managers that the firm would recover in spite of the turbulence it was going through.
The news of the Jennings resignation got to the media 50 days later after one of the managers leaked Horn’s letter to Russians business daily, Vedomosti Daily. In the email, there was a little detail that would change the course of things in Ksh 280 billion Tatu City.
Horn told the senior managers in the email that apart from pleading with creditors to restructure the tenure of Ksh 50 billion Eurobond, the firm would also be seeking to dispose assets held by the firm but were not core to its investment banking operation.
In fact, in November 2012, when Moody’s dropped the bombshell on the firm’s creditworthiness, a decision had been reached to split the investment banking business held under Renaissance Capital Financial Holdings and asset management business held under Renaissance Group whose assets included land assets in Africa.
In the email, Horn told the senior managers that Renaissance Group had assets worth US$221 million (Ksh 22.1 billion) but these assets were opaque and illiquid. These assets included Jennings shareholding in Tatu City which was through a Cyprus registered firm – SCF II Holdings and Renaissance Capital.
What Horn did not divulge to the senior managers is the fact that, although Renaissance Group assets were valued at US$221 million, the new firm had a huge debt of US$225 million (Ksh 22. 5 billion). US$98 million (Ksh 9.8 billion) debt to the assets management arm was held by Prokhorov through his investment firm Onexim Group.
In November when the Renaissance was split into two distinct companies, Jennings was forced to relinquish his shares in Renaissance Capital and continue as the Managing the highly indebted Renaissance Group. In other words, Jennings was leaving Russia with a mountain bag of debt that he hoped Africa would help him repay.
Yet even the relocation was a not a walk in the park. Renaissance Group whose assets were held under Renaissance Asset Managers was broke. Jennings left Russia by feigning illness that caused him to collapse but the rescue ambulance drove him not to hospital but to the airport.
To finance his relocation to Africa, Jennings turned to his former employee during the better days at Renaissance Capital, Frank Mosier. He was now a billionaire who had struck a gold mine with Kazimir Partners, a Russia focused hedge fund that he founded in 2002.
Negotiations between Jennings and Mosier for the sale of Renaissance assets in Africa were first reported by Russian private sector owned news agency, Interfax on December 25, 2012 while the sale was concluded in March 2013. The financial consideration in the deal between Jennings and Mosier was not divulged when the deal was concluded in 2013 but Mosier took over as the board chair at Renaissance Group.
But the acquisition of Renaissance Asset Managers by Kazimir Partners only increased the pressure on Jennings to squeeze money from the African assets. Besides pressure from creditors such as Prokhorov, he now had to answer to Mosier and investors in Kazimir Partners who wanted a quick return for their investments.
Yet the only assets that had the potential for turning in quick cash in Renaissance Asset Managers assets was Tatu City Project. In Ghana, a project for a city similar to Tatu City had stalled while in DR Congo its land ownership was held up court cases. But to squeeze money from Tatu City drastic decisions had to be taken by Tatu board of directors who included Nyagah, Shah and Mwagiru.
First, the interest rates for the loan that Jennings through Renaissance Investment Partners had advanced to the offshore company CedarSoc that he owned jointly with the Vimal Shah, Nahashon Nyagah and Stephen Mwagiru had to be increased in order to squeeze more money for Kazimir Partners and Jennings creditors.
Tatu City draft accounts we have seen show that by 2014, sale of 10 plots of Tatu City land had generated Ksh 7.5 billion all the money had gone to repay the loan. According to the accounts prepared by Jennings, the loan had of Ksh 6.2 billion had ballooned to Ksh 9.4 billion by the end of 2014.
To get the loan to Ksh 9.4 billion, Jennings had increased the interest charged to CedarSoc to 33 percent per year and applied it retrospectively to 2011 when it was disbursed. But that was just a small part of the scheme. The next act was bulldoze a board resolution that would sanction the selling of another plot of land to make further loan repayments.
Vimal, Nyagah and Mwagiru opposed the motion when it was introduced in January 2015 arguing that the loan had been repaid in full and that selling off another piece of land would kill the Tatu City dream. Their opposition was to be circumvented in a manner they could not stop.
Unknown to the Kenyan shareholders, Jennings had unilaterally diluted their shareholding and increased his and that at this point he could pass any motion in the board. Eventually, Jennings had his way and another piece was sold at Ksh 4.8 billion which again went to Renaissance Asset Managers accounts.
Yet, to complete the scheme of stripping Tatu City naked, Jennings needed board members who agreed with his every motion in the board and management. In February, he achieved this feat by Nyagah as company chairman and all senior Tatu City limited staff, replacing Nyagah with coffee baron, Pius Ngugi.
Ngugi is a shadowy business tycoon who made his first million very much like the notorious Asian businessman Kamlesh Pattni by claiming minerals export compensation when Mwai Kibaki was Finance Minister in Dictator Daniel arap Moi government. He pooled enough cash to begin a franchise of Volvo vehicles and later ascended into coffee industry opening a rival Thika Coffee Mills to compete with the giant Kenya Planters Cooperative Union (KPCU). Unlike KPCU, where he was also a director, Ngugi had no arrangement with coffee farmers to supply him but his factory never lacked the commodity as coffee thefts from growers factories escalated in central Kenya.
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Jennings appears to be enjoying protection all the way to Kenya’s State House. A forensic investigative report handed to President Uhuru Kenyatta’s Chief of Staff and Head of Civil Service Joseph Kinyua in 2016 exposing Jennings underhand deals was never acted upon. The same office is sleeping on a concept paper outlining how Kenya Citizens from all walks in life can participate in the Fight Against Corruption.
Last week a Jennings media briefing directly linked State House to Tatu City controversy. A senior employee of the presidential delivery unit openly coerced journalists to sanitize multi-billion real estate firm, which is facing tax evasion and money laundering claims. It is unlikely he would go that far without some prodding from his boss.
The former journalist at a local TV station is aiding majority shareholders of the firm to paint a picture a law abiding institution even after Jennings rubbished parliamentary committee probe on Tatu City. Jennings declared a parliamentary report dead even before its is tabled for discussion.
The man appears to have some assurance from State House that no harm will come his way. He has also assembled bribes-hungry members of Parliament to disparage the Parliamentary probe. Corruption is the common currency in Kenya’s Parliament and its report by be rubbished if MPs get as little as Ksh 10,000.
On Friday, October 26, Tatu City major shareholder Jennings held a press conference where he blamed unnamed forces for spreading falsehoods about Tatu city. It is at that press briefing, where the official appeared alongside Jennings, that he personally asked journalists from media houses to share copies of their stories on Tatu City before publishing them. The idea is to kill any story that would expose Tatu City under belly of fraudulent dealings and massive tax evasion.
Like Moi era notorious economic heist Goldenberg International and Mwai Kibaki’s Anglo Leasing, Tatu City may be the project that will taint Uhuru’s presidency in the years ahead and make Eurobonds, NYS and other scandals look like a child’s play. It will undermine his war on corruption now that it has insiders in State House on the steering wheel.
Even with money laundering and tax evasion issues unresolved Tatu City is now seeking a Ksh 20 billion as tax refund from KRA on infrastructure of roads, sewerage systems, power lines and supply of water to tenants. The company will also charge buyers of the properties for the same – killing two birds wth one stone. Tatu City is basing its claim on a little known new law brought by Njeru Githae when he was Finance Minister for a short time. Njeru has a history with real estate industry exploitation of property buyers.
If KRA approves the claim it will be an accomplice because strickly private property developers cannot be given tax rebate or special economic zones by the government otherwise even private home owners should be refunded the costs they incur on infrastructure to their residences.