KCB Group's bid to acquire Kenya's troubled National Bank has run into strong headwinds following claims that the deal is being done in violation of the rules governing the sale of state-owned companies.
Opponents of the sale say that Kenya's National Treasury, which is handling the transaction, has not complied with the privatisation law, and is proceeding with the sale without the involvement of the Privatisation Commission -- the agency that oversees the sale of all state assets, including mergers. The commission is required by law to execute each privatisation proposal that the Cabinet has approved.
But Dr Paul Otuoma, who chairs the commission, said that the agency has had no role in the planned sale.
"We have not been handling this transaction. It is important that the relevant agencies are informed accordingly when there is a change in government policy," Dr Otuoma said.
Kenya's Treasury Cabinet Secretary Henry Rotich did not respond to our calls and text messages on the transaction.
The proposed sale has also become the subject of parliamentary investigation in the wake of a petition by an MP.
The Kenya National Assembly's Finance and Planning Committee has opened investigations into the proposed takeover with a view to establishing whether the assets have been valued correctly, and the interests of pensioners, employees and taxpayers are protected.
The investigation also aims to establish whether the transaction was subjected to public participation or merely a boardroom decision that is being driven by Treasury mandarins.
The committee must finish the work and submit a report to the House within 60 days.
Kenya's privatisation law requires every merger or acquisition involving state entities to be approved by Cabinet and parliament, and then gazetted before the commission is brought in to execute it. Such transactions should also be subjected to public participation.
The Privatisation Act (2005) prohibits the transfer of a public entity's interests in a state corporation without being included in the privatisation programme, calling into question the legality of the ongoing process.
It has not helped that the planned sale contains clauses that are likely to hurt other National Bank shareholders, including the National Social Security Fund and ordinary investors with stakes in the bank through the Nairobi Securities Exchange.
Fresh details of the deal indicate that the National Treasury is pushing for conversion of preference shares held in National Bank into ordinary shares, a move that will significantly dilute minority shareholders and workers' savings held in the NSSF.
People familiar with ongoing discussions between the National Treasury and KCB said the Treasury is pushing for a one for one (1:1) conversion of the 1.135 billion preference shares into ordinary shares.
This will raise the National Treasury and NSSF's combined interests in National Bank to 93 per cent from the current 70.6 per cent, diluting minority shareholding by a massive 22.4 per cent.
Treatment of the preference shares has been the subject of a long-drawn out battle between the two anchor shareholders in National Bank -- causing the abandonment of a proposed Ksh10 billion ($100 million) rights issue in 2013.
Holders of preference shares are entitled to a fixed rate of dividend whether the company makes a profit or not, but do not have voting rights.
The Treasury's chosen path to sell National Bank while excluding the Privatisation Commission is also raising eyebrows, because the National Treasury is the single largest shareholder in KCB with immense influence on the board, and is therefore effectively negotiating with itself on the transaction.
National Bank is among three state-owned banks that the government had earmarked for sale to end their drain on the exchequer. The other two are Development Bank of Kenya Ltd and Consolidated Bank of Kenya Ltd.
In 2016 a South African consulting firm, Genetics Analytics, recommended that the government relinquishes ownership of the three banks instead of merging them.
KCB has offered to buy 100 per cent of National Bank through a share swap consisting of one KCB share for every 10 held in National Bank, meaning the deal has valued the troubled bank around Ksh6.6 billion ($66 million).
KCB, which has operations in Uganda, Tanzania, Rwanda, Burundi and South Sudan, plans to offer a maximum of 147,378,120 ordinary shares to shareholders of National Bank.