The Qatar bank question in the Eurobond transaction saga  

The mystery surrounding the Sh250 billion Eurobond cash has deepened following revelations that a Qatari bank was included as a joint lead manager at the last minute before the issue was floated on the Irish Stock Exchange.

Inquiries by the Sunday Nation revealed that the Qatar National Bank (QNB), which is said to enjoy close relations with influential people in the Jubilee government, was not part of the initial deal which had Barclays Bank, JP Morgan and Standard Bank listed as the joint lead managers of the transaction.

The whole Eurobond deal is now a subject of investigation by the Ethics and Anti-Corruption Commission (EACC) and the Public Accounts Committee (PAC).

Director of Public Prosecution (DPP), Mr Keriako Tobiko, has directed that individuals involved in the saga be investigated and the file returned to him in 10 days to decide whether to prosecute or not.

Cord leader Raila Odinga has accused the National Treasury of cooking figures to cover up what he says is a missing Sh140 billion.

“We demonstrated in our letter to the National Treasury that the only way that the Government has been able to accommodate all the Sh250 billion Eurobond in its budget accounts is by understating domestic borrowing for FY 2014/15 by Sh140 billion, from Sh250 billion to Sh110 billion. We are gratified to note that the Government has confirmed receipt of all the Eurobond proceeds. Other than this, the document does not respond to our questions. If anything, it reinforces our concern that this is a huge scam,” said Mr Odinga.

Before then, the National Treasury had argued that the Sh140 billion was spent transparently and gave a tabulation of the ministries that received the funds.

“Out of total Sh250 billion of the sovereign bond, Sh35 billion was utilised in fiscal year 2013/14 and the remaining amount of Sh140.5 billion from the initial sovereign bond and the Sh75 billion from the tap sales were used in FY 2014/15. It is clear, therefore, that the total of these amounts (35+140+75) is the total amount of the bond proceeds. Therefore, there is no missing Sh141 billion,” argues the National Treasury.

OTHER KEY PLAYERS

Other key players in the Eurobond transaction were Dyer and Blair, which is owned by businessman Jimnah Mbaru. 

Dyer and Blair were the co-managers. Mr Mbaru, now a politician, was a long serving chairman of the Nairobi Stock Exchange.

The lead managers are defined as underwriting firms who are in charge of the books of accounts.

The prospectus also shows that Citibank was the paying agent with Anjarwalla & Khanna, Kaplan and Stratton, Arnold and Porter LLP (US) and their London branch being the legal advisers.

Details obtained by the Sunday Nation show that a top economist, who is now a government adviser, pushed through the inclusion of the Qataris in unclear circumstances.

JP Morgan, Barclays and Standard Bank were listed as the lead managers. Incidentally, Standard Bank was investigated in Tanzania over a controversial Eurobond floated in that country and fined this year. (See separate story)

On Saturday, Attorney-General Githu Muigai asked us to direct questions on the Qataris to the National Treasury and not Sheria House. He argued that the legality of the Eurobond was not in question.

“You must put such questions to the Treasury, only the Treasury can answer. People are asking questions about where the money is. And Treasury is explaining where the money is, and as far as we are concerned there was no any legal question before, during and after issuance,” said Prof Muigai.

INTERNATIONAL LEGAL ADVISERS

He stated that Kenya hired international legal advisers to handle legal issues and “no single legal issue came up”.

National Treasury’s Principal Secretary Kamau Thugge confirmed that they included QNB at the end of the process after they realised that they did not have a coverage in Asia and the Middle East.

“We included them at the end of the process. They went through the Ministerial Tender Committee just like the rest of the lead managers. The reason was to cover the whole world,” said Dr Thugge.

He stated that the government brought in the Qataris because Kenya was thinking of raising an Islamic bond — Sukuk — in future.

“The QNB came in largely for two reasons: To get as wide diversity of investors as possible – ie JP Morgan (US), Barclays (UK), Standard (Africa) and QNB (Middle East) and since we were thinking of issuing a Sukuk bond, it was important to get someone who might later help us,” said Dr Thugge.

Sukuk is an Islamic bond structured to generate returns to investors without infringing Islamic law.

COOKED FIGURES

Dr Thugge dismissed claims by Mr Odinga that they had cooked figures at the Treasury. He also dismissed claims of a scam.

“There is no cooking of figures. If the Prime Minister is relying on (David) Ndii’s numbers to say Sh140b is missing this is a monumental mistake. Once the Eurobond money came to the CBK these were considered as government deposits... hence the total domestic financing of Sh251 billion including use of sovereign bond deposits at the CBK. This means that if you isolate use of the sovereign bond deposits then the remaining domestic financing is Sh110.6 billion,” Dr Thugge said.

On Saturday, Controller of Budget Agnes Odhiambo confirmed that Eurobond proceeds were received into government accounts.

“Sh196.9 billion was transferred to the Consolidated Fund. I have seen the bank statements and confirmed that it was received. Sh53 billion was used to offset the syndicated loan and the balance paid the expenses for raising the bond. The key question would be that the public wants to know what projects were funded,” Ms Odhiambo said.

On his part, Mr Karim Anjarwalla of Anjarwalla & Khanna advocates stated that their role was purely legal. 

He said they were “restricted on advising the Government on the legalities under Kenyan law on raising the Eurobond”.

However, Mr Anjarwalla argued that they are bound “by a duty of confidentiality so the information we can share with you is limited by this duty”. 

He said: “An external legal adviser would not be involved in the actual sale of the Bonds or in the receipt and movement of any funds raised from the sale of the Bonds.

Therefore, your reference to this firm being part of a ‘cover-up’ is based on a misunderstanding of what the role of an external legal is, in the context of a Eurobond issuance.”

QATAR NATIONAL BANK

Documents we obtained from the Irish Stock Exchange show two prospectus dated June 19, 2014 and November 28, 2014 appearing in Irish Stock Exchange Debt Security Documents. 

The prospectus, which are public documents, show the omission and later on the inclusion of Qatar National Bank LLC, which is said to have interest in the Kenya-Uganda pipeline, a key pillar of the Lamu Port South Sudan-Ethiopia Transport (LAPSSET) Corridor Project. The project involves Kenya, South Sudan, Ethiopia and Uganda.

The Sunday Nation attempted to get a comment from the QNB LLC in vain. An e-mail we sent to them was not responded to at press time.

Curiously, in June, this year, QNB caused speculation in the local financial market when it bought  space in local media to announce its 2015 profits even though it does not operate in Kenya.

According to government sources, who spoke in confidence, QNB on its own does not have a representative licence in Kenya.

However, we learnt that in September 2014, QNB purchased a 23.5 per cent stake in Ecobank, a large banking conglomerate with headquarters in Togo.

The acquisition made QNB Ecobank’s top shareholder. Ecobank has had a presence in Kenya since June 2008 when it acquired majority stake in the former East African Building Society bank.

Information on the bank’s website shows the chairman of Ecobank Kenya board of directors as Mr Mohammed Nyaoga, who is also the chairman of the Central Bank of Kenya board of directors.

It should be noted that even international banks with representative licences in Kenya do not publish their financial statements locally.

According to the advert, QNB with a $140 billion (Sh14.2 trillion) asset base, made $140 million (Sh14.2 billion) profit during the period.

CLOSE TIES

The leaders of Qatari government are said to be close friends with top Jubilee government leaders.

The friendship was passed on to them by their influential supporters in the previous coalition government that was headed by  President Mwai Kibaki.

At the height of the controversial Sh1.4 billion Anglo Leasing payment last year, a gas deal worth $1 billion (Sh100 billion) between Kenya and Qatar was under negotiation although a final agreement is yet to be inked.

President Uhuru Kenyatta reportedly intervened to get the debt settled after the Qataris raised questions about Kenya’s creditworthiness.

According to sources, in order to have the Qataris get a share of the Eurobond pie, Parliament was in May 2014 arm-twisted by the Executive into amending the Public Finance Management Act 2014 so as to remove the safeguards in the PFM Act.

However, the move did not override the Constitution Article 2069(1)(a) which provides for establishment of the Consolidated Fund and gives Parliament authority for opening any other accounts, which does not seem to be the case.

To cure the situation, the lead manager advised the government to amend the PFM Act to allow Kenya to open and run offshore accounts into which the managers would deposit the proceeds.

OFFSHORE ACCOUNTS

The offshore accounts, the lead manager reportedly informed the government, would not be subject to the strict UK anti-bribery laws.

As such, the government came up with amendments to the PFM Act that passed in Parliament in May 2014, just a month before the Eurobond was floated.

According to Suba MP John Mbadi, who is also the ODM chairman, the amendments to the Act were couched in a way that appeared well-meaning but hid the truth.

The amendments touched on four areas, three of which Mr Mbadi says could have been used to move billions of proceeds from Kenyans who have now been left with a Sh250 billion loan whose benefit they have not felt.

First, the Act was amended to allow the government to float bonds externally because there was no law that permitted that and as such it was precedent setting.

“In principle we agreed to this because we understood the need and urgency to float the bond to improve our infrastructure as the government then said,” said Mr Mbadi.

It is the other three amendments, according to the legislator, that opened the floodgates for what the Opposition has branded a scandal of monumental proportions in which the government is said to have failed to account for Sh140 billion.

The PFM Act was amended to allow the bond proceeds to be put in accounts other than the Consolidated Fund contrary to the provisions of Article 206 of the Constitution.

“By this the government was not setting up another Fund as per Article 206(3). At the time the government argued that since the proceeds of the sovereign bond would be in dollars it would be cumbersome to transfer the same in dollars to the Consolidated Fund before converting them locally. As the Hansard will bear me witness, we as Cord were saying that there was nothing wrong with having a dollar account at the Consolidated Fund. They used the ridiculous tyranny of numbers to carry the day,” said Mr Mbadi.

The third amendment to the Act involved allowing suppliers outside the country to be paid from the offshore accounts, something the Opposition coalition says they had issues with since the same could easily be used to pay fictitious suppliers like the Anglo Leasing type contracts.

“The fourth aspect of the Act that was amended, and which we have the biggest problem with, was to allow paying of brokerage fees and commissions to people involved as transaction advisers from these offshore accounts,” said Mr Mbadi.

The amended PFM Act was, therefore, allowing that whatever the government was to receive was net of the commissions and brokerage fees.

“In effect, the Executive was excluding the Controller of Budget from scrutinising the withdrawals. This is where we have information that some money was paid to certain individuals with political connections and to offset some political debts. That is why we are now asking to know how much was paid to these transaction advisors,” said Mr Mbadi. 

Information that the Sunday Nation obtained suggests that it was also after the amendments were passed that the Qataris came on board following the intervention of the Jubilee adviser in order, sources say, to raise money to pay off a political debt from the 2013 General Election and advance QNB’s interests in the Kenya-Uganda pipeline as well as those of a top Jubilee politician.