John Gachora-led NCBA Group risks $9.7-million loss in attempt to revive insolvent business

NCBA Group, which is led by businessman John Gachora and controlled by the Kenyatta family, says it is set to incur a Ksh1.1-billion ($9.74 million) loss after it failed to revive the operations of an insolvent Arvind Engineering Limited.

According to Business Daily, Arvind Engineering was put under administration in 2019 after defaulting on the payment of a Ksh840-million ($7.43 million) loan owed to NCBA Group.

As a result of the default in the loan’s principal and interest payment, the total value of the debt owed to the Gachora-led banking group rose to nearly Ksh1.1 billion ($9.74 million) as of Oct. 14.

Earlier, NCBA Group raised concerns over the debt that it was owed by the company after an audit revealed a stark contrast between the value of its assets and liabilities.

The huge value gap forced the bank to request to be paid all the company’s proceeds from all its assets, as well as for an exemption from the provision of the Insolvency Act, which requires 20 percent of the value of the proceeds to be distributed to unsecured creditors under the law.

The bank explained that if 20 percent of the sale proceeds were distributed as such, it would be extremely unfair to the lender considering the debt that it was owed.

In reaction, the Milimani High Court in Nairobi issued a decision allowing the proceeds of the sale of the company’s assets, which are valued at Ksh145 million ($1.3 million), be applied to offset a fraction of the outstanding debt.

Considering the debt owed to the bank, Justice Alfred Mabeya said this was the best option and the decision represents a case where the court needed to depart from the general rule.

NCBA Group is a Nairobi-based financial services conglomerate led by Kenyan businessman John Gahora, who holds 381,755 ordinary shares in the Kenyan financial services provider.

The bank posted Ksh6.53 billion ($58.01 million) in profit during the first nine months of 2021, as earnings surged by 159 percent in the period under review.

During the first nine-month period ending Sept. 31, the banking group incurred losses of Ksh9.2 billion ($81.4 million) on its loan portfolio, down from the Ksh13.4 billion ($118.6 million) that it incurred in the corresponding period of 2020.

In 2020, it registered a loan loss provision of Ksh20.4 billion ($180.54 million), which pressured its profits to Ksh4.6 billion ($40.7 million).