Jamii Bora Bank’s management has told shareholders that they were duped into buying Uchumi Supermarket shares.
Chief executive Samuel Kimani says the information memorandum used to entice the tier-II lender into the Sh500 million acquisition did not show the true position of the retail chain.
“As a listed company, we got the transaction approved by all regulators but the information memorandum was a work of fiction, it did not reflect what we found there,” said Mr Kimani at the bank’s June annual general meeting.
“We feel cheated because unlike a private company where you do due diligence, a listed company you depend on the information memorandum provided.”
Jamii Bora Bank together with Goodwill Ltd, an affiliate firm, increased its shareholding of Uchumi to 15.8 per cent last year.
The government holds a 14.67 per cent stake of the retail chain.
The bank has been buying shares in the listed retailer since November 2014 when Uchumi was making a cash call that raised Sh1.5 billion, surpassing the Sh896 million target.
The bank’s chief executive says that they had strategically bought into the retailer to gain on their countrywide network of distribution and their clientele.
He said while acquiring another bank would have been a costly affair, Jamii Bora concluded that the Sh500 million investment was “a small price to pay”.
“When you want to scale up, you buy another bank but that is expensive, take for instance Giro Bank that was bought by I&M, for Sh5 billion Mr Kimani said at the AGM.
He said the bank decided to take up Uchumi which offered an opportunity to access 800,000 more customers. The retail chain also offered access to a supply chain of about 2,000 suppliers as well as 40 extra outlets when Jamii Bora bought it.
“As at now Uchumi is insolvent, but all is not lost, I believe Uchumi will still pay off, especially after suppliers agreed to convert debt into equity and the government is in talks with its management for a loan,” said Mr Kimani.
The Nairobi bourse has come under criticism from investors over the number of listed companies that have sunk millions of investments with shareholder value getting wiped out for some listed stocks.
Investors have complained that some firms which have recently come under duress including Uchumi, Mumias Sugar, Kenya Airways, Atlas Development and TransCantury have seen investors pay dearly for their poor performance.