Business Daily (Nairobi)
Washington Gikunju
3 July 2008
Investor claims against collapsed Nyaga Stockbrokers have risen to nearly one billion shilling mark putting the statutory managers in a financial fix.
The claims were lodged with the Capital Markets Authority (CMA) and the Nairobi Stock Exchange (NSE) - the joint statutory managers - by an estimated 70,000 investors.
The enormity of the financial hole left by Nyaga became even clearer as the period for receiving claims from investors and creditors closed last month.
Though verification may lead to a slight drop in the amount claimed, attention will now be focused on how CMA and the NSE plan to raise the colossal amount needed to settle the claims.
It is emerging that the statutory managers are mulling over a number of options, including approaching Treasury for a bail-out, selling more seats at the NSE or settling a fraction of the claims - an option that would almost certainly shake general investor confidence in the market.
For a market that boasts of holding over 1.5 million accounts, a drop in investor confidence could also erode the credibility of the CMA as the regulator and the NSE as a self regulating body for stockbrokers.
Both institutions have been taking credit in the fact that no investor has ever lost money owing to impropriety of any stockbroker. This assertion will now come under a serious challenge as the clock ticks towards the September 9 deadline by which statutory managers are expected to make their final submissions to the appointing authority.
Receipt of claims from investors ended on June 9, revealing a huge hole in the broker's accounts that sources close to the statutory management team put at approximately Sh950 million.
Mr Wycliffe Shamiah, the principal joint statutory manager appointed by CMA, declined to confirm the total claims figure but promised to release the information once the verification and forensic audit on certain accounts with huge claims are done.
Both the CMA and NSE have however promised to ensure that no investor loses their money to brokers. There are genuine fears that the huge bill may see some investors with large claims get only a part of it.
"At this point the CMA is saying that we don't want any investor to lose anything," said Mr Shamiah in an interview yesterday.
The new NSE chairman James Wangunyu promised that no investor would lose their funds, adding that the current claims figure was likely to come down significantly upon conclusion of the verification and forensic audit process.
"The case against Nyaga Stockbrokers managing director Patrick Gakiavih is now in court but we will work closely with CMA to ensure no investor suffers loss," said Mr Wangunyu.
Mr Wangunyu said that CMA would have the final word on the compensation of the investors, but added that NSE would step in to help raise the funds if necessary.
He referred to the unprecedented sale of collapsed Stockbroker Francis Thuo and Partners in 2006 for Sh251 million as a pointer to what the NSE could do to settle the claims. Part of the money was used to pay claims amounting to an estimated Sh140 million.
"Remember we received a bid of Sh452 million from Old Mutual, which was however only rejected on a technicality, we could still sell more seats," said Mr Wangunyu, referring to the asset management firm's failed bid for Francis Thuo's seat.
There is concern that only an auction of at least four seats would raise the huge amount required to settle the claims. Ordinarily, the CMA and the NSE investor compensation funds should bear the burden of settling the claims, but there is fear that none of these funds has enough money to settle the claims.
A source close to the statutory management team who did not want to be named said that the huge claims could force the statutory managers to pay out only the Sh50, 000 per investor as provided under the law plus an ex-gratia amount, or approach Treasury for a bail out.
"There is no legal obligation to compensate investors in full. We could end up paying the statutory minimum and only a fraction of the excess claims," said the source.
Immediate former NSE Chairman Jimnah Mbaru has previously called on the Central Bank of Kenya to consider lending to investment banks, like the recent bail-out of Bear Stearns Investment Bank of the United States by the Federal Reserve Bank, US's CBK equivalent.
"We would also like to appeal to CBK to consider being the lender of last resort for investment banks," said Mr Mbaru in a business luncheon held in May.
Bear Stearns was faced with collapse owing to the sub-prime mortgage crisis that hit investment banks last year, until the Reserve Bank and the Morgan Chase Investment Bank's joint bail-out plan was crafted in May last year.
Mr Shamiah however said that such a bail-out option for Nyaga's investors would be difficult given that Government expenditure is based on its yearly budget, which was already presented to parliament last month.
He however could not confirm the amount currently held in the CMA's investors' compensation kitty.
Another issue that could complicate such a bail-out plan, our source added, is that Nyaga is most likely to be declared insolvent, and no loans can generally be extended to an insolvent company.
Contacted, NSE Chief executive Chris Mwebesa said that CMA and NSE were keeping their options open, and said that they were looking at the many fund raising options that had been exercised in other jurisdictions.
"The auction of Francis Thuo's seat was unprecedented; we could still come up with another radical option," said Mr Mwebesa.
Mr Shamiah was optimistic that the claim verification and forensic audit process could be completed in the next one month, after which the team will draw proposals and recommendations for action by the capital markets authority.
The number of claimants is also expected to decline from the initial estimate of 70,000 as at June 9, following detection of multiple claims.
Be the first to Write a Comment!
Copyright © 2008 Business Daily. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
