The Tatu City story has been told severally, but has been mostly one sided, by one party and with a hidden agenda. The true story of the City has been hidden from the public, with the media taking sides and telling lies in most of their stories.
Before 2007, Socfinaf, a Kenyan entity was a Belgian owned company that held assets comprising of nine coffee factories and one mill on a land bank of 11,000 acres in Ruiru. The company at that time was valued at $162 million (Ksh16.2 billion). This included the 1,000ha (2500acres) in Tatu Estate. The owners wished to get out of the business and decided to sell the company in stages.
This is when the idea of developing a city at the area struck, with business gurus taking up the idea ready to actualise it. However, there were not only business gurus, but also conmen disguised as businessmen who would cripple the nobble idea.
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Steve Mwagiru and Nahashon Nyagah worked out an agreement with the Socfinaf owners to buy 35% of Socfinaf as a stage one and at the same time they had also obtained an option agreement for buying the balance of the 65% shares as stage two under a Company called Waguthu Holdings (K) Ltd in whose names the agreements were made. Mwagiru and Nyagah had secured exclusivity on this deal and option with Socfinaf’s owners by advancing $20 million (Ksh200 million) however this transaction had no documentary or paper trail.
In April 2007, they appointed Suntra Investment Bank Ltd to handle the transaction to find investors. Suntra issued an Information Memorandum for the sale of 35% of the Company i.e. 1,575,000 ordinary shares in Socfinaf Ltd at a price of Ksh2,400/- per share (USD$ 36 per share at that time) resulting in the valuation of the entire 100% of the company at USD162 million (Ksh16.2 billion). As per the memorandum, investor commitments had already been made for 19% of the shares and therefore they were looking for commitments for the balance 16% of the shares.
At this stage they approached Bidco’s Vimal Shah to partner with them in purchasing the 16% shares of Socfinaf as per the Suntra Information Memorandum. However, Shah a visionary, thought better of this and came up with the idea of starting up a new concept of developing a new city which formed part of the Vision 2030 strategy, to set up a new satellite city on the land. This was accepted by them and then the whole project format and concept changed.
Both Mwagiru and Nyagah negotiated to buy the land called Tatu Estate (1,000ha) alongside an option in their favor with an offer to buy the entire shareholding of the company Socfinaf from the owners. Mwagiru and Nyagah negotiated hard and the sellers agreed to reduce the total price to $105 million (10.5 billion) for the whole of the Company including the Tatu Estate. All this was agreed under the Waguthu Holdings (K) Ltd name and the sale and purchase agreement and the options agreement were both made in the name of Waguthu Holdings (K) Ltd now termed as Tatu City Ltd.
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Both Mwagiru and Nyagah formed their own investment company called Blackknight and Vimal and family formed their investment holding company called Redline in Mauritius to hold 50% each in a new entity called Manhattan Coffee Investment Holdings (MCIH) in Mauritius to own Waguthu Holdings (K) Ltd. MCIH then decided to seek for funding of the entire transaction of buying Tatu Estate and to exercise the option on Socfinaf. A term sheet from Barclays was even obtained and was being discussed for this entire purchase.
At this same time in 2007, Bidco was approached by Renaissance Capital (Rencap) a private equity firm from Russia who had opened an office in Nairobi, with an offer to invest in the FMCG area and to grow it as Rencap. Rencap had a lot of investable capital – however this offer was declined by Bidco’s Shareholders which said it was not up for sale.
Instead, Rencap was introduced by Shah to the Socfinaf opportunity and they said they had reviewed it before, but they did not see any future in the coffee business. This was specifically, Mark Jennings and Josephat Kinyua who were working for Rencap.
However, once MCIH gave them the entire viewpoint of the City concept, Rencap then headed by Stephen Jennings wanted to participate as a partner in the entire project in phases, and Rencap also wanted to be the arrangers for the funding of the purchase price so that MCIH does not have to approach any other financiers. This joint venture was agreed and accepted by MCIH and Rencap.
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From the original valuation of $166 million, Mwagiru and Nyagah negotiated and brought down the price to $105 million (Ksh10.5 billion) which included the arrangement between Mwagiru and Nyagah with the owners of Socfinaf to post $20 million (Ksh2 billion) payment privately. Ultimately, when the private payment could not be assigned to the new entity then Socfinaf brought the final transaction price down to $85 million (Ksh8.5 billion) which comprised of $20million (Ksh2 billion) for Tatu Estate and $62.5 million (Ksh6.25 billion) for the balance of the shares of the company Socfinaf.
To reiterate, the total valuation of the land at the time was $162 million (Ksh16.2 billion) which in the end was discounted to a final transaction price of $85 million (Ksh8.5 billion) with internal arrangements being that had been made for the $20 million (Ksh2 billion) discount between Socfinaf and Mwagiru/Nyagah.
The different companies involved in this transaction is clearly illustrated in the organogram showing how the initial companies of BlackKnight and Redline formed a company called MCIH (Manhattan Coffee Investment Holding) which was comprised of Mwagiru, Nyagah and Shah and Socfinaf which then got together to form another company, Cedar IV. Cedar IV commenced operations of establishing and funding Tatu City.
Since MCIH had already paid its share privately, Socfinaf agreed to pay its share of $20 million (Ksh2 billion) to buy Tatu Estate through a shareholder loan from Cedar IV. To equalize the shareholding, they agreed to pay $10,936,653 to MCIH via the Deposit Advance Agreement. The deposit advance agreement signed between MIH and SCFII Holdings for the later to advance $10,936,653 (Approximately Ksh1 billion).
The first transaction was the transfer of $20 million (Ksh2 billion) as a loan from Cedar IV to Tatu City for the purchase of land was paid to the owners of Tatu Estate – Socfinaf. So the entire purchase was using debt owed by Tatu City Ltd of Ksh2 billion and it also mortgaged its entire property for this debt.
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For the balance shares in Socfinaf, a second company called CedarSoc was formed. This was to the entire shareholding of Socfinaf at a price of $65 million (Ksh6.5 billion). Jennings advised the other partners that Rencap was so cash rich this wouldn’t be a problem and he would get market rate loan and they should leave it to him. The partners agreed and went ahead and the entire transaction of the option was entered into and the shares were acquired by using Ksh6.5 billion loans.
The interest rate agreed at this time was the prevailing market rate. However, after some time, the board was told the interest on this loan was 33% per annum. No communication of this rate had been made before.
This funding was arranged through Rencap at an arrangement fee of Ksh200 million. There was an Deposit Advance Agreement signed for Renaissance to pay Ksh200 million. In all these transactions, it is worth noting that Jennings did not discuss the interest rate at the time of procuring loan but only communicated once the loan was procured which did not give the other partners much of a chance to look at other bank loans.
This is where problem at Tatu City started, and in the next part, we shall tell you how the wrangles spoiled one of the greatest dreams of the generation for Kenya.
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