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CMA faces probe over defaults in Sh13.5bn Cytonn funds

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Capital Markets

CMA faces probe over defaults in Sh13.5bn Cytonn funds


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Cytonn Investments chief executive Edwin Dande. FILE PHOTO | NMG

The Capital Markets Authority (CMA) faces a parliamentary probe in the wake of mounting complaints from investor reports of delayed payment of returns from Cytonn real estate investments.

Garissa Township MP Aden Duale wants the Finance and National Planning Committee to probe the regulator following the proliferation of unregulated and illegal investment funds that have led to loss of investor funds.

The CMA on Thursday said it has opened investigations into Cytonn High Yield Solutions (CHYS) and Cytonn Project Notes (CPN)—which have investments worth Sh13.5 billion.

The agency does not regulate the two funds, which have failed to pay investors upon maturity of their investments in properties developed by Cytonn.

The company has been marketing the funds as private placements, a closed shop of a few sophisticated investors, which do not fall under the ambit of the CMA.

But filings in court show that Cytonn had raised money from 3,000 investors in breach of regulations that demand funds raised through private placements to involve less than 100 people.

Mr Duale says the breach is a product of CMA sleeping on the job.

“This has brought into question the effectiveness and efficiency of the CMA in regulating the capital markets in Kenya,” he said.

Mr Duale cited instances which point to the failure of the CMA to regulate the capital markets effectively in total disregard of Section 11 of the Capital Markets Act. He said in 2005 the Imperial Bank Ltd allotted Sh2 billion to bondholders despite having ongoing financial fraud within the bank.

“The bank eventually collapsed together with investors’ funds under the watch of the CMA.”

Mr Duale said in the same year, the CMA cleared Chase Bank to issue Sh4.8 billion bonds ahead of the bank being placed under receivership, terming it poor regulatory oversight by the agency.

“In 2018, the Nakumatt Holdings Supermarkets issued Sh4 billion commercial paper and thereafter defaulted on the commercial paper resulting in write-offs by banks and suppliers,” he said.

The MP said the estimated total losses of innocent Kenyan investments due to the negligence of the CMA in terms of regulation is approximately Sh36.8 billion.

“The chairperson of the departmental Committee on Finance and National Planning should provide a statement on the total number of all the unregulated capital markets products in the country and the number of investors in the said products,” Mr Duale said.

He further wants the committee to provide details of the total number of firms penalised by the CMA in the past five years and remedial action taken for the lost funds.

Cytonn has since last year faced many legal suits from investors over contract breaches after the company asked them to postpone payment of their investments, citing liquidity problems following effects of Covid-19.

The CMA only regulates five funds under the company, including Cytonn Money Market Fund, Cytonn Balanced Fund, Cytonn Equity Fund, Cytonn Africa Financial Services Fund, Cytonn Money Market Fund (USD), and Cytonn High Yield Fund.

The five have put money in a mixed portfolio that includes stocks, foreign exchange, fixed income and real estate.

The CMA has asked investors affected by the two funds to file reports with Capital Markets Fraud Investigation Unit, a police unit attached to the regulator.

Cytonn’s two troubled funds invested in real estate properties that were not under the watch of the CMA. Some investors have sued the company for contract breach and raised issues about the operations of the two funds.

Kenneth Kasinga said he was lured to invest Sh3 million believing he was being made a partner in the private cash call involving less than 100 people only to discover Cytonn had raised money from 3,000 investors.

He said that the company disguised the Cytonn High Yield Solution as a private placement to avoid scrutiny yet it did not satisfy the conditions set out by the CMA to qualify as such.



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KQ resumes Mumbai flights after 4 months

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KQ resumes Mumbai flights after 4 months


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A Kenya Airways aircraft at JKIA. FILE PHOTO | NMG

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Summary

  • Kenya Airways will on Thursday resume flights to Mumbai, ending a four-month hiatus that was occasioned by increased cases of Covid-19 in the Asian state.
  • The airline in a notice to its customers yesterday said it will resume its operations on the route on September 16, 2021 with the first flight departing Jomo Kenyatta International Airport at 7am to arrive in Mumbai at 3:45 pm.

Kenya Airways #ticker:KQ will on Thursday resume flights to Mumbai, ending a four-month hiatus that was occasioned by increased cases of Covid-19 in the Asian state.

The airline in a notice to its customers Monday said it will resume its operations on the route on September 16, 2021 with the first flight departing Jomo Kenyatta International Airport at 7am to arrive in Mumbai at 3:45 pm.

The airline will then resume full operations on the route on September 20, flying three times per week on the Indian route, which is one of the most lucrative destinations on its network.

Passengers on the route will part with Sh46,000 ($419) for one-way air ticket on economy class seats from Nairobi to Mumbai- prices that are relatively the same compared to what it was charging before the Covid-19 pandemic.

“Welcome back onboard! Fly from Nairobi to Mumbai starting Thursday 16th September with normal schedules resuming from Monday 20th September 2021,” said the airline in a notice to its customers yesterday.

KQ Suspended passenger flights to and from Mumbai on April 30 until further notice, following a government directive on travel between India and Kenya due to a Covid-19 crisis in that country.

The airline said on Friday that passengers who had booked tickets after May 1, the date of the last flight from Mumbai to Nairobi, will have to change their plans.

Affected passengers, KQ said, could also take vouchers for the value of their fare for future travel within 12 months.

India has seen soaring infection rates in the recent days, since the discovery of a new virus variant. Last month, India put on lockdown one of the states following a spike in cases of Covid-19.

Other countries that have banned flights to India include France, the UK Bangladesh, Oman and Hong Kong that have banned travel to and from India or asked their nationals coming from the Asian country to isolate themselves in government-approved hotels.

India has so far detected 33,264,175 corona virus cases with the number of deaths hitting 442,874 as at September 13.

A large number of patients from Kenya also travel to India every year for specialised medical treatment, especially cancer care, helping to drive medical tourism in the densely populated country that boasts affordable and easily accessible healthcare.



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Lower import volumes push mitumba prices to new highs

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Lower import volumes push mitumba prices to new highs


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Man pulls a cart loaded with second-hand clothes at Gikomba Market in Nairobi. FILE PHOTO | NMG

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Summary

  • Traders paid Sh100,527 on average per tonne of the used clothes, popularly called mitumba, compared to Sh96,286 the previous year.
  • Kenya Bureau of Standards (Kebs) banned importation of the clothes from late March through mid-August in a bid to contain the spread of the life-threatening coronavirus infections.
  • Findings of the Economic Survey 2021 suggests dealers shipped in 121,778 tonnes of mitumba in 2020, a 34.02 percent fall compared with 2019 and the lowest volumes since 2015.

The average price of a tonne of second-hand clothing items imported into the country crossed the Sh100,000 mark for the first time last year on reduced volumes in the wake of safety protocols and guidelines to curb spread of coronavirus.

Traders paid Sh100,527 on average per tonne of the used clothes, popularly called mitumba, compared to Sh96,286 the previous year.

Kenya Bureau of Standards (Kebs) banned importation of the clothes from late March through mid-August in a bid to contain the spread of the life-threatening coronavirus infections.

Findings of the Economic Survey 2021 suggests dealers shipped in 121,778 tonnes of mitumba in 2020, a 34.02 percent fall compared with 2019 and the lowest volumes since 2015.

Last year’s drop was the first dip since 2011 when 76,533 tonnes were shipped in compared with 80,423 tonnes the previous year, the official data collated by the Kenya National Bureau of Statistics (KNBS) shows.

The import bill for the merchandise amounted to Sh12.24 billion, a drop of 31.11 percent, or Sh5.53 billion, year-on-year.

TIn imposing the temporary ban on used clothes, Kebs had applied a standard which prohibits buying second-hand clothes from countries experiencing epidemics to ensure disease-causing microorganisms are not imported into Kenya.

Higher quality and relatively lower prices for mitumba has continued to drive demand for used clothes at expense of locally-made products amid higher margins enjoyed by traders largely operating in informal markets.

The lucrative second-hand clothing market has seen traders from China —a key source market for the merchandise —open shops in Gikomba, Kenya’s largest informal market for mitumba, in recent years to cash in rising demand.

Earnings from exports of articles of apparel and clothing accessories fell 5.32 percent to Sh32.92 billion last year compared with 2019, data indicates.



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Court backs Atwoli union in horticulture membership feud

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Court backs Atwoli union in horticulture membership feud


Cotu boss Francis Atwoli

Cotu boss Francis Atwoli. FILE PHOTO | NMG

Summary

  • A trade union that is led by the long-serving Central Organisation of Trade Unions (Cotu) boss Francis Atwoli has survived an attempt to stop it from representing over 60,000 workers in the horticulture industry.
  • Newly registered Kenya Export, Floriculture, Horticulture, and Allied Workers Union (Kefhau) had filed as a case in the Employment and Labour seeking to bar the Atwoli-led Kenya Plantation and Agricultural Workers Union (KPAWU) from representing workers in the industry.

A trade union that is led by the long-serving Central Organisation of Trade Unions (Cotu) boss Francis Atwoli has survived an attempt to stop it from representing over 60,000 workers in the horticulture industry.

Newly registered Kenya Export, Floriculture, Horticulture, and Allied Workers Union (Kefhau) had filed as a case in the Employment and Labour seeking to bar the Atwoli-led Kenya Plantation and Agricultural Workers Union (KPAWU) from representing workers in the industry.

Mr Atwoli is the secretary-general of KPAWU. The rival union claimed KPAWU had encroached on its area of workers’ representation.

Justice James Rika, however, dismissed the claim and ruled that the dispute should have been taken through conciliation, and was therefore presented in court prematurely.

He also stated that Kefhau must go beyond its registration and recruit sufficient members from the employers, to be granted recognition and organisational rights.

“Registration on its own, does not afford the claimant (Kefhau) recognition. Until there is proof that Kefhau has satisfied Section 54 of the Labour Relations Act, the status quo must be maintained,” said the judge.

“Kefhau must recruit at least 50 percent plus one, of the unionisable employees in the floriculture and horticulture industry, members of the Agricultural Employers Association to be considered for recognition,” he stated.

He noted that there is a Recognition Agreement and CBA, binding Mr Atwoli’s union and Agricultural Employers Association, affecting 73 Flower Growers Group of employers, and over 60,000 employees.

“It is objectionable for Kefhau to be allowed organisational rights, and the legitimacy to receive trade union dues and agency fees, from over 60,000 employees, just on the strength of registration as a trade union,” said the judge.

Kefhau wanted the court to declare that it is the sole trade union, which is allowed by its constitution to carry out activities in the export floriculture and vegetable industry, and an order restraining Mr Atwoli’s from representing workers in that area.



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