Karuturi: Falling from rosy era into den of debt

As Karuturi and Stanbic Bank await a landmark court decision that will determine whether company directors are liable for debts accrued during receivership, the aftermath of the ongoing war coupled with the flower farm’s previous troubles have left behind ruins at the firm that used to be Kenya’s largest flower exporter.

Once worth $90.951 million (Sh9.2 billion), most of the crucial assets Karuturi relied on to make it one of the world’s go-to sources of fresh roses now look like a scene from a post-apocalyptic movie.

From the 29 greenhouses to the planted flowers, irrigation and temperature control systems and the Karuturi hospital, a good number of the cogs in the machine that created an ecosystem supporting more than 10,000 Naivasha residents are now in poor condition, with damage estimated at over Sh3.2 billion.

DAMAGE

Documents in court — which Karuturi’s owners are now basing a Sh12.9 billion claim from Stanbic on — indicate that the flower firm’s assets have been among the hardest hit in the receivership wars.

The greenhouses, for instance, which were valued at Sh2.35 billion, are believed to have suffered severe damage, with many not having their polythene covers replaced or repaired.

The firm placed structural damage at Sh230 million and damage to polythene used to cover the greenhouses at Sh212 million.

“The structure as now can’t protect the crop and the crop has maximum damage and mortality. Over 50 percent of total recapitalisation on greenhouse is required to make the structures useful to roses growing,” a valuation by Hectare & Associates reads in part.

This, the valuation adds, has denied rose plants much needed humidity and exposed them to direct sunlight.

REPLANTING

The rose plants too have been neglected as the valuation reports states that the farms have not been pruned to get rid of dead vegetation, and pests have been allowed to have their way around the vast land.

To fix this, replanting seedlings afresh is required, at least according to Hectare & Associates - which says damage of Sh2.5 billion has been done.

Several blockages, severe direct sunlight and wild growth of unwanted plants around the farm has damaged irrigation systems and cost the flower farm Sh230 million.

Hectare & Associates adds that propagation systems, which were used to provide a conducive growth atmosphere for roses, have been completely damaged and have seen Sh84 million go up in smoke.

This, the valuation firm holds, happened with damage to the worm composting unit and other equipment, mostly caused by dirt.

The worm composting unit aids in using worms to help break down food scraps into valuable soil nutrients.

HOSPITAL

Medical equipment at Karuturi hospital has also suffered damage of Sh10 million as the equipment, which has not been disclosed in the document, was not maintained by receiver managers.

The hospital is set-up on two blocks and has a pharmacy, casualty area, examination room, laboratory, paediatric ward, general wards, dental clinic and an ultrasound unit.

When consultancy firm Deloitte was conducting a court-ordered probe, it spoke to Mr Jan Renting of Optimal Connection, a firm that helps flower sellers search for buyers.

Mr Renting told Deloitte that Karuturi’s flower quality has deteriorated since 2014.

But the audit firm noted that Mr Renting was not involved in the day-to-day running of Karuturi, and that his comments were not “informed by facts on actual operations at the farm”.

The Deloitte report, in many instances, gave Karuturi’s receiver managers a clean bill of health, dismissing claims like inflation of fertiliser prices, destruction of the managing director’s lake house and poor bookkeeping.

SALES

The auditors also noted that data kept by the workers union was inconsistent, hence could not be used to back up claims by Karuturi’s owners that receiver managers understated sales.

For instance, the union claimed that on week 32 of 2015 there were 4,010,776.76 rose stems produced, yet stems can only be counted in whole numbers.

Deloitte also dismissed an audit report by PKF, which had been commissioned by Karuturi’s owners, and went ahead to interview the document’s authors.

PKF’s Phanuel Gad Wekesa held that he would not have called Stanbic’s receivership wrong if he had been shown all the loan documents.

The auditors did note that flower sales may have been under declared by Sh114,363, which could lead to VAT dues of Sh15,774.

On the health of the company, Deloitte noted that the company was making losses before and during receivership, hence it was difficult to expressly blame statutory managers for its current predicament.

RECEIVERSHIP

Karuturi Limited, Rhea Holdings and Surya Holdings amended the suit they filed in 2014 to stop receivership, and now insist that Stanbic cost them billions by illegally taking over management of their flower business.

In the suit, Karuturi’s owners are seeking compensation of Sh12.9 billion and a declaration that Stanbic is not entitled to the claimed Sh400 million pre-receivership debts.

They argue that receiver managers have since 2014 misappropriated over Sh1 billion “in the pretence of recouping Stanbic’s dues”.

Karuturi Limited, Rhea Holdings and Surya Holdings have accused Ian Small and Kieran Day — receiver managers appointed by Stanbic in February 2014 — of deliberately running down the flower farm to ensure that there is no option but to liquidate it.

RULING

The Court of Appeal was to deliver a ruling in December last year on whether or not Karuturi should pay the disputed Sh1.8 billion loans extended to it by Stanbic.

The judges, however, said their decision is not yet ready, and that parties will be given notice when they have a ruling ready.

Stanbic insists that it must be paid all monies advanced to Karuturi, and that the Sh1.4 billion debt during receivership was not a loan but payment of expenses on behalf of the flower firm.