Investors in the Cytonn High Yield Solution (CHYS) and the Cytonn Private Notes (CPN) now want the court-appointed administrator Mr Kereto Marima removed.
The decision to have the administrator removed was reached during an investors’ meeting held on April 13, 2022. The investors also voted to have the process of tracing financial flows started and enforcement of corporate guarantee.
The two funds were placed under administration in October 2021, as part of ongoing efforts to turn around their performance. The application for administration was filed by the Chief Executive Officer of Cytonn Group, Edwin Dande pursuant to a unanimous resolution by the Board of CHYS investors.
Administration gives the funds the room to restructure, recover, and return value to investors.
“First, administration provides an enabling environment for restructuring under a competent administrator. Second, it gives a moratorium on any ongoing collection efforts so that all investors get to be treated equally. It is going to be a difficult period but we shall accord the process all the support it needs to ensure that we come out of this as an even stronger brand and investor value is preserved. In any event, the assets remain safe, tangible and visible, but illiquid hence the need to restructure. We remain committed to always putting our clients’ needs first,” said Dande last year.
The funds experienced liquidity strains at the onset of the Covid-19 pandemic, a situation that the management said was further aggravated by negative publicity and sustained social media regulatory attacks by the management of the Capital Markets Authority (CMA).
Reached for comments, CMA acting Chief Executive Wycliffe Shamiah declined to comment, saying that the products are not regulated by CMA.
“That Cytonn (CHYS and CPN) is not regulated hence not under us,” said Shamiah.
Given the illiquidity of the funds, the board invoked the Force Majeure clause, resulting to a 15-month moratorium (from March 2020 to June 2021). During this moratorium, CHYS and CPN were estimated to be able to service 50 percent of their interest obligations.
Following the closure, a few investors took legal steps that would essentially put them ahead of the other investors in terms of recovery of investments. To protect the interest of all investors, the board recommended the funds proceed to administration to give them room to restructure and refund investors and also to equally protect the interest of all investors.
According to James Gitau, the chair of the Credit Committee for the one of the two funds, the investors have grown impatient with the administrator, who has not shown any signs of turning things around six months down the line.
“The administrator’s job was to restructure the funds as well as preserve and protect the assets owned by the two funds with a view of recovering the money for investors. Six months down the line we cannot see any progress, and the investors are growing impatient. These people (investors) have Ksh13.7 billion in the two funds and the administrator is not even giving any concrete plan (on how to recover the money),” says Gitau.
“We even have to push him to get even simple information. Maybe administration process was not the correct decision. We are currently seeking legal advice on the best step to take next.”
Kereto Marima, the administrator, declined to comment on the matter.
Reached for comment, Edwin Dande said, “It’s their assets, it’s them to decide the fate of the assets, our role is merely an investment manager.”