Mwalimu Sacco’s bid for ECB splits co-op movement

Money Markets

Mwalimu Sacco CEO Robert Shibutse. He previously served as an executive director at Equatorial Commercial Bank. PHOTO | FILE 

By DAVID HERBLING, herblingd@ke.nationmedia.com

In Summary

• Kenya Union of Savings and Credit Co-operatives (Kuscco), an influential credit union lobby, has thrown its weight behind the Mwalimu-ECB deal days after it was vehemently opposed by rival Co-operative Alliance of Kenya (Cak).
• Last month Cak filed a petition with the Ministry of Industrialisation and Enterprise Development opposing Mwalimu’s Sh1.6 billion purchase of a 51 per cent stake in ECB, pointing out ‘irregularities’ in the deal.
• Kussco has rubbished these concerns, saying they were meant to derail the deal.

Mwalimu National Sacco’s controversial purchase of a majority stake in Equatorial Commercial Bank (ECB), reportedly halted by the government last week, has split the cooperative movement down the middle with two camps emerging.

Kenya Union of Savings and Credit Co-operatives (Kuscco), an influential credit union lobby, has thrown its weight behind the Mwalimu-ECB deal days after it was vehemently opposed by rival Co-operative Alliance of Kenya (Cak).

Kussco has written a strongly worded letter to Cak, an umbrella co-operative movement lobby, asking it to ‘‘cease and desist’’ from discussing Mwalimu’s takeover of ECB, owned by billionaire businessman Naushad Merali.

“We are aware that three independent government bodies cleared the transaction after thorough perusal of documents and recommendation of the transaction advisers,” said Kussco managing director George Ototo in a letter dated January 28, 2015 addressed to Cak.

“It is therefore counterproductive to feign overruling powers and attack an independent private business entity with a push and intention to reverse their acquisition plan,” said Mr Ototo.

Last month Cak filed a petition with the Ministry of Industrialisation and Enterprise Development opposing Mwalimu’s Sh1.6 billion purchase of a 51 per cent stake in ECB, pointing out ‘irregularities’ in the deal.

The ministry had in September demanded that Mwalimu furnishes it with a due-diligence report on the bank before any transaction is undertaken, but the Central Bank of Kenya and Sacco Society Regulatory Authority (Sasra) later went ahead to clear the deal.

Mr Patrick Musyimi, the Commissioner for Co-operative Development, last week appointed a three-man team to investigate why Mwalimu Sacco concluded the purchase despite its directive to freeze the deal until the report was provided.

READ: Why State stopped Mwalimu Sacco, Merali bank deal

At the centre of the tussle is a feasibility report prepared by Ernst & Young which Mwalimu hired as transaction advisor in the multi-billion shilling deal.

Cak’s petition alleges that the due-diligence report prepared by the consultancy highlighted serious concerns about ECB’s financial status.

“The due diligence report has not been presented to the highest decision-making organ of the Sacco (annual delegates meeting) to ensure members give informed consent for the investment,” reads the petition.

The lobby also raises corporate governance issues due to the fact that Mwalimu Sacco CEO Robert Shibutse, who was hired in June last year, previously served as an executive director at ECB.

There have also been claims that ECB engaged in asset stripping ahead of sale to Mwalimu Sacco. ECB in October last year transferred Equatorial Fidelity Centre, its prime office complex valued at Sh414.5 million, to Fidelity Shield Insurance where it owns a 23.86 per cent stake.

But Kussco has rubbished these concerns, saying they were meant to derail the deal.