Cytonn Investments CEO Edwin Dande denied reports that its unregulated investment arm, the Cytonn High Yield Solution (CHYS) has defaulted as reported by the Capital Markets Authority (CMA).
In a statement to investors and stakeholders, Dande says that CHYS is not regulated by the CMA, and that the media misreported the developments.
This comes after the Daily Nation and its sister paper the Business Daily reported that 13 investors had reported CHYS to CMA for defaulting a payout of Ksh122.8 milion.
In his response, Dande says that the investment arm has over 4,000 investor, and only 13 disgruntled investors reported to the CMA, without stating which specific covenant had been defaulted on.
““Default is a technical term governed by a loan document, hence it’s sheer incompetence for a regulator to be talking about default so casually. They are so casual in their conduct that they don’t even respect the right to privacy for the 13 investors who approached them on confidence,” says Dande.
He also adds that the alleged default was as a result of investment restructuring as a result of the effects of Covid-19, that was agreed upon by investors.
“Surely a regulator does not know the difference between a loan restructuring and a loan default?” he poses.
“CHYS is a fund invested in real estate and whose board of investors approved an extension of maturities by 12 months for Pre-COVID funds. The decision is binding to all CHYS Pre-COVID investors. Out of 4,000 investors, about 13 of them were unhappy and approached CMA, and that is the letter that is making rounds in the news,” said Dande.
According to the agreement dated June 29 and seen by this writer, CHYS would extend Principal Amounts for the entire portfolio for 12 months, with the view that that is the worst-case estimate for the pandemic period, with consistency to the moratoriums that banks are giving real estate developments.
“In this environment, real estate, in particular, is struggling. Buyers of units have asked for more time to pay – we currently have over 1.6 billion receivable from buyers,” Cytonn said in June.
“Luckily for us, our real estate remains in very attractive locations, hence this is a temporary setback. For Cytonn Real Estate, we have to approach our banker, CHYS for a one-year moratorium to preserve the portfolio through the pandemic,” added Cytonn.
Cytonn says the matter raised by the two dailies is not part of the ongoing court case, where Cytonn has obtained court orders baring CMA from interfering with its regulated arm, the Cytonn High Yield Fund (CHYF).
“Subsequent to the stay order issued on September 21, CMA then authored a letter dated September 21, put it into a replying affidavit dated September 22, delivered it to our offices on September 23 and shared the affidavit with the public. However, in the affidavit, they raised issues with another fund, the privately offered Cytonn High Yield Solutions, CHYS, which is a different fund, not regulated by CMA and has nothing to do with the matter in court,” added Dande.
The CMA had sought to limit the investment of the CHYF’s portfolio funds to 10 percent. The 10% rule applies to funds where the Trustee, the Custodian and the Fund Manager are related companies, Cytonn asserts that there is no relationship between National Bank – the Trustee’s, SBM Bank Kenya – the Custodians and Cytonn Asset Managers – Fund Manager.
Reached for comment, Mr. Dande said, “I obviously can’t comment directly on the matters in court, but I am deeply disappointed by the conduct of the Authority. It’s an intensely conflicted organization. It’s is so fond of misinterpreting it’s own regulations… what is so hard about a simple regulation such as regulation 29, ‘A trustee shall not be entitled to resign except upon the appointment of a new trustee.’ Why do we need a court to interpret that? In 2020 we have an authority that essentially makes it illegal to set up real estate mutual fund? No wonder we can’t raise Funds for the President’s affordable housing agenda. In normal economies, business rely on capital markets for 60% of their funding, with banks only providing 40%. In Kenya capital markets provide less than 5%, and the biggest threat to capital markets growth is CMA and the issue needs to be closely examined.”
“Additionally, CMA cannot pretend to be protecting investors in a private fund, where it has no mandate whatsoever, yet it has not been able to protect investors in its own regulated instruments such as Amana Money Market Fund Unit holders, Chase Bank bond holders, Imperial Bank bond holders, Mumias shareholders, uchumi shareholders, nakumatt noteholders, etc. they just need to back off.”