How Real People carted billions to South Africa
In Nairobi, if you give the man selling a phone by the street corner just a minute of your time, you end up buying expensive clay. Give the person on the other end of the phone probably from Kamiti prison another minute, you still lose more money.
But even in the safest space, the capital markets where investments are regulated and protected, transactions are digitised and monitored, in Kenya if you let your guard down, you lose more money.
In 2019 Sanlam Kenya was coming to the realisation that it could not recover almost Sh1.14 billion it had invested in several Kenyan companies.
Nakumatt was teetering towards certain death, Athi River Mining was down to cement dust and Kaluworks was wobbling. What they did not understand was a company called Real People whose business was simple, lend to small businesses and collect the cash.
In 2015 Real People had convinced retail investors, insurance firms and institutional investors to lend them Sh1.3 billion. They promised it would be paid back in tranches in three and five years. None of the principal payments were ever made.
What investors did not know is that the company never intended to pay.
Exclusive documents
According to exclusive documents seen by Smart Business, long before the bond was issued, plans were drawn in South Africa to transfer an internal loan to the Kenyan subsidiary. "After Kenya bond has been issued, it would make sense for Real People East Africa to fund itself… To achieve this, the loan receivable from Uganda must be transferred to RP (Real People) Kenya prior to repatriation of funds from Kenya bond issue to RP-in settlement of intercompany loan," the documents read.
Regulators have uncovered a paper trail that shows the company started draining the bond money in just over a week after collecting the funds at NIC Bank in August 2015.
A scheme that involved top managers at the lender saw them wire the funds in small tranches acting on emailed instructions to move them to an account in Standard Chartered Bank in Kenya and later transferred to a Standard Chartered Bank account in South Africa.
Some money was wired to Chase Bank then diverted back to the Standard Chartered account. Investigators believe the money was put into the company account at Standard Chartered to muddy the waters so that the bond money and company funds were one and the same.
From 2015 to 2016 all the Sh1.3 billion had been siphoned and channelled out of the country to related companies in South Africa, Uganda and Tanzania
Once in South Africa the money was quickly moved to third party companies, paid utilities and office expenses, and channelled to a suspect group of suppliers within the same day or the next after it arrived from Nairobi.
Meanwhile in Kenya, investors were waiting for the first tranche of the three year Sh267 million bond on August 2018, wary of what had happened to their colleagues who had lost money in Chase Bank, Imperial Bank bonds.
Reports started circulating that the firm was not doing well, in fact auditors raised queries on whether Real People was a going concern, a technical term to describe a company that will shut down if creditors asked for their money.
The firm countered with talks of a strategic investor who could buy into it and bring in much-needed funds to generate enough revenue to repay investors.
Former Real People Chief Executive Officer Daniel Ohonde.
On August 3, the bank called the bond holders and laid bare the empty coffers, if they could only wait up to January 2019.
In December the lender announced a second postponement, and a third and a fourth and a fifth to June this year.
Sh267 million
If they could not pay Sh267 million they certainly could not afford the Sh1 billion bond, which was due in August 2020. Here also investors have received two postponements to June this year.
However in one of the meetings the lender introduced a clause that allowed it to keep the money till 2028 turning three and five year bonds into a 13 year bond.
Real People has had many bosses with Robert Shibutse serving as the current executive after replacing Charl Kocks who replaced Yvonne Godo who took over from Daniel Ohonde in just three years.
Mr Shibutse said he was not aware of investigations and only knew of an engagement with the Capital Markets Authority adding he would revert back after getting a clearer picture in meetings with the regulator.
In a previous interview with Charl Kocks this writer got what seemed then a candid admittance of making wrong lending choices.
He said over five years the company had seen considerable changes in the market as use of financial services among adults grew from 41.3 percent in 2009 to 66.7 percent in 2013, while those relying on informal ways of getting cash declined from 27.2 percent to 7.8 percent. Real People saw that a segment of Kenya had limited access to credit because they were perceived as risky and went for them.
During the good days, the firm raised money in the bond market confident it had selected the right people to give the cash to.
He said the firm went on a lending spree and lost almost Sh1.7 billion over four years to defaulters it could not trace.
"In that bad book, people have died, people have moved on, people took us for a ride so it would be wrong to say that there is some magic wand to fix that. Some of those guys can't even be traced for example," the then Real People chief executive Charl Kocks told this writer earlier.
Real People Chief Executive Robert Shibutse,
"We made these mistakes and we have owned up to the investors; sure the economy was too bad with two elections. But we made mistakes and we are not making mistakes any longer," Kocks said.
The realisation that the money was instead diverted from the intended purpose indicated when raising the bond has come back to haunt this fable and its narrator, who is now being hunted by the market regulator.
Mr Kocks did not respond to an email sent to him.
The story of how investors in Real People lost Sh1.3 billion to a local and an international scheme to siphon bond proceeds from Kenya to South Africa, is just the latest chapter in what has hurt what was once the thriving bond market.
Kenya's corporate bond market is currently a Sh22.1 billion portfolio issued by six firms compared to August 2014 when there were 28 listings with a value of Sh71.28 billion. BY DAILY NATION
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