The KCB Group seized the luxury property English Point Marina in Mombasa and placed Pearl Beach Hotels, the property company that owns it, under statutory management for a debt of 5.2 billion shillings.
Pearl Beach Hotels has struggled to meet its obligations to the bank over the years.
A source with direct knowledge of the matter within the Business Registration Services (BRS) confirmed that the lender took over the property on Tuesday.
“I can confirm that KCB bank took over English Point today,” the source said, adding that the lender has appointed a receiver-manager to manage the asset.
English Point Marina joins high-value properties that fell into the hands of lenders after their developers defaulted.
Among them is Nairobi’s DusitD2, currently claimed by I&M Bank, with other creditors seeking ownership of the property complex.
KCB’s move to take over English Point Marina came after the bank repeatedly tried to restructure the loan but the owners were still unable to meet payments, the source said.
The receiver-manager is expected to sell some or all of the property with the aim of raising sufficient funds to settle amounts due to KCB. Other creditors can also get something once the bank’s claims are paid.
Lenders are still allowed to appoint receiver managers in loan agreements that existed before the 2015 Insolvency Act came into force, which then ushered in an administration that prioritizes rescuing a business in difficulty before considering the sale of assets.
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“The administrative receiver is responsible for realizing enough of the company’s assets to pay the bondholder and, if possible, other creditors as well. The appointment of a judicial administrator ends automatically after 12 months from the date on which it took effect”, indicates the BRS on its website.
KCB has started to audit the buyers of the units and their serviceability of their purchases.
English Point Marina is owned by Amin Kanji, his wife Leila, his brother Alnoor, his sister-in-law Nafisa and Nazir Jinnah. The luxury property is located near the port and consists of 96 apartments, eight penthouses and a 26-room hotel.
It is one of the few private projects to have achieved Vision 2030 Private Sector Flagship status.
The property has been sold to several people and the source said those who bought units will not be affected by the KCB takeover.
“KCB will audit those who have purchased units. Those who have paid will receive their homes while those who have not yet made their payments will process the rest under the bank. There is no reason to panic,” the source said.
Banks have been forced to place companies in receivership to deal with the increase in bad debts. The ratio of gross non-performing loans (NPL) to gross loans stood at 14.1% in April 2022 compared to 14% in February.
The Central Bank of Kenya (CBK) said increases in NPLs were seen in the building and construction, manufacturing, trade, transport and communications sectors. These increases were attributable to specific challenges in the respective businesses, and the banks continued to build provisions for NPLs.
It appeared that a few large customers, such as English developers Point Marina, are the main cause of the rise in payment defaults. Large customers borrow billions of shillings, which means that the default of a few of them can lead to a large increase in NPLs.
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KCB’s takeover of English Point Marina came after the developer fell out with buyers who claim they did not take possession of the homes they bought at a cost of 600 million shillings.
High Court Judge John Mativo recently authorized the Directorate of Criminal Investigations (DCI) to investigate Pearl Beach Hotels, the developer, for alleged theft through fraudulent billing of apartment owners.
Judge Mativo in February dismissed a lawsuit filed by Pearl Beach Hotels, seeking to halt the investigation. His orders came as a group of 12 buyers sued the property developer for locking them out of their apartments over disputed utility bills.
In civil matters, the buyers are contesting English Point Marina’s decision to refuse them the possibility of subletting their apartments.
Buyers claim an internal memo instructed English Point Marina staff to discriminate against black African landlords by implementing strict rules to deny them access to the property.
Disgruntled buyers include William Asiko, head of the Rockefeller Foundation for Africa, Sam Kairu and Booker Mbugua. The others are Susan Muigai, Kariuki Minju, Joseph Wanjui, Solomon Bundi, James Kinuthia, Resilient Investments, Everywhere Investments and Silverline Investments.
Disgruntled buyers say that despite paying disputed service charges, electricity has been disconnected to some apartments as management refuses to account for the money collected.
Some of the conditions set by management have also triggered bitter fallout.
“For example, apartment owners are required to give notice to management before viewing their apartments, which is an absurd requirement,” John Khaminwa, the buyers’ attorney, said in court documents.
‘Management has refused to allow the apartment owners’ servants access to their units in order to clean them and maintain them in a livable condition in the absence of the owners.’
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Dr Khaminwa adds that English Point Marina has prevented buyers from renting out their apartments, contrary to the purchase agreement in which the management pledged to help with the subletting in return for 30% of the revenue received.
The lawyer says English Point Marina deliberately disabled apartment owners’ security keys in a bid to prevent their tenants and guests from opting into the hotel instead.
The English Point Marina had filed a complaint against the DCI seeking to stop the investigations, arguing that the grounds for the investigation are similar to those of the civil lawsuit brought by the 12 buyers.
Judge Mativo found that the civil proceedings were only aimed at preventing English Point Marina from denying buyers access to their apartments, while the criminal investigations focused on the disputed service charges.