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Firm that promised investors sun and moon but delivered false hope

Sunday June 9 2019

John Kithaka

FEP Group CEO John Kithaka during the interview at his Nairobi office on August 11, 2014. PHOTO | DIANA NGILA | NATION MEDIA GROUP 

WANJOHI GITHAE
By WANJOHI GITHAE
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He came armed with a Bible, silver tongue and hope. But a decade and about Sh6 billion worth of investments later, the bounty dividends that architect John Kithaka promised have not been delivered.

Thousands of Kenyans both at home and abroad put their savings in Fountain Enterprises Programme (FEP) and, 12 years later, they are yet to receive their dividends.

COLLAPSED

In 2012, investors were promised that dividends would start being paid in 2015, then in 2018 and then this year, 2021 was announced as the new magical date.

Tired of the tall tales, some investors have invited the Directorate of Criminal Investigations (DCI) to investigate the firm and those in the United States are calling on the Federal Bureau of Investigations (FBI) to intervene. Last year, the company estimated to be worth Sh4 billion made a loss of Sh650 million. So, what went wrong?

An interview with former managers show wrong investments, an overbearing founder, fraud by managers and lack of systems punctured the momentum of what was once a promising company.

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 “As of May 2011, members were able to sign up on the Sh399,381 per share offer. Original founder members bought tier two founder shares at Sh760,000. By close of share selling in August 15, 2012 a share was going for 465,000,” said an investor who was heavily involved in mobilising Kenyans in United States.

The money was to be invested in hotels, tours and travels, schools, real estate and banking.

To realise this, several companies were established including MobiKash, Fountain Media, Fountain Group of Schools, Fountain Sacco, Nobel Insurance Agency, Suntec Supermarket, Fountain Credit Services, Fountain Technologies, Fountain Safaris, Kisima Real Estate, Nobel Insurance Agency, and Citadelle Security. Several have since collapsed.

According to interviews with some board members, that was the company’s first mistake. It spread itself too thin and was unable capitalise on all the businesses it ran.

Current FEP Holdings chairman James Kaguchia admitted to the Sunday Nation that the slow progress of projects was due to undercapitalisation triggered by a failed private placement in 2014 but the company is still on course. Fountain radio and TV, for instance, weree understaffed and had little cash for operations and thus collapsed.

OVERBEARING

MobiKash, a money transfer service, was one of the earliest investments but it was closed under unclear circumstances down without benefiting investors.

“Although FEP had initially partnered with MobiKash, the deal was later deemed as not viable. FEP therefore exited the partnership with CBK’s approval,” Mr Kaguchia said.

But, perhaps, one of the most iconic investments was Suntec Hotels in Sagana, Kirinyaga County, which has stalled.

“An estimated Sh800 million of investors’ cash has been used to put up the four-star Suntec Hotel in Sagana which is 70 per cent done with a current valuation of Sh1.2 billion. The hotel is due for launch later this year in partnership with a Swiss hotel operator,” said Mr Kaguchia.

Mr Kaguchia said FEP Group comprises three arms, namely, FEP Holdings (the holding company) with 74,000 shareholders; FEP Society (the network) with over 200,000 members; and FEP Sacco (savings and credit), with over 15,000 members.

The firm’s CEO has been accused of being overbearing, accusations he has denied in previous AGMs arguing that as the dream carrier, he needed to be firm.

With a new corporate structure courtesy of the FEP Society Strategy 2019-2021, Dr Kithaka’s designation is no longer President but Patron of FEP Society. He remains the holding company’s CEO but is not directly involved in running the subsidiaries as was the case in the past.  Mr Kaguchia said he is aware of the anxiety among members but adds that all is not lost.

“In 2017, FEP made a loss of Sh650 million. FEP value currently stands at Sh4.15 billion,” he said.

In 2012, Mr Charles Kabaiku, who was tapped from the United States to help manage the company, left within months after his advice on the need to have systems put in place was disregarded.

 “When I came in as the Group Operations Manager, we declared a positive profit on our annual reports at the AGM of about Sh58 million for the year ending 2012. I tried to centralise the financial management system but the move was resisted,” said Mr Kabaiku.

 Charles Kabaiku, Fountain Enterprises Programme

Mr Charles Kabaiku, an investor and former Group Operations Manager at Fountain Enterprises Programme (FEP), speaks during an interview at Nation Centre in Nairobi on June 5, 2019. He said his efforts to streamline financial systems at the company were strongly resisted. PHOTO | EVANS HABIL | NATION MEDIA GROUP

An audit by KPMG revealed that some managers were pilfering the firm. The company did not disclose the nature of theft.  Fearing that they may lose their investment, Kenyans in the US complained to the embassy in Washington.

The then Kenyan ambassador to US Robinson Githae forwarded the complaint to the Directorate of Criminal investigations but little was done.

Now, fearing that their investigations on the operations of FEP may not be conclusive, Kenyans who also hold US citizenships are mulling forwarding the issue to the United States federal government authorities.

“The Kenya Embassy in Washington DC actually contacted FEP and proposed that CID intervenes regarding alleged misappropriation of investors’ money. However, upon review of the case, the CID did not find a basis to investigate FEP,” said Mr Kaguchia. Some of the cases the diaspora cites are an investment in Mombasa. Diaspora investors were told to purchase beach plots in Mombasa with fliers showing plots numbers and a hotel to be built, but little progress has been made.

In 2016, Mr Kithaka went around selling shares of a Tier three bank. The issue has not been heard of since despite shareholders having been promised a stake in the bank.

“FEP Holdings had intended to acquire a stake in the said Bank. However, following further internal deliberations and consultations with the Central Bank of Kenya, FEP decided to pull out of the deal. However, some individual FEP shareholders have invested in the bank in their personal capacities,” said Mr Kaguchia.

Mr Kaguchia said FEP Group currently owns an estimated 6,000 acres of land valued at over of Sh2 billion. The land is earmarked for housing projects and hotels.

CONSULTATION

“We are also exploring agribusiness and any other viable ventures. The new board is currently reviewing and re-aligning the Real Estate strategy to guide the group’s investment through the three-year ‘FEP Mpya’ turnaround journey,” he said.

But the most baffling issue was the sudden creation of a new company, Tai Eagles and Tai Housing, which was done with minimal consultation with investors.

 “Tai Ltd is an associate company of FEP Holdings. There exists no financial or governance relationship between TAI and FEP. Tai Eagles deals with healthcare and housing. Tai runs two health facilities, Tai Eagles Hospital in Thika Town and Nairobi CBD. Tai is currently in discussions with KRA regarding certain aspects of compliance. During the 2014  AGM, members passed a resolution to close all FEP offices as a cost-cutting measure. Tai Ltd, an associate company to FEP Holdings, was co-sharing the physical space with FEP,” said Mr Kaguchia.

The chairman calls for patience.

“The best laid plans do not always yield the intended results,” Mr Kaguchia said.

Additional reporting by Nicholas Komu