• The American private equity fund and one of Spencon’s founders, Jitendra Chhotabhai Patel, have accused each other of multi-billion shilling fraud in a series of global lawsuits, including cases in Mauritius, Uganda and the United States.

US private equity fund Emerging Capital Partners (ECP) says its take-over of Kenyan construction firm Spencon was legal, deepening the ownership crisis facing the troubled company.

ECP says Spencon’s founders defaulted on their financial obligations, which automatically saw them lose shareholding of the company.

The American private equity fund and one of Spencon’s founders, Jitendra Chhotabhai Patel, have accused each other of multi-billion shilling fraud in a series of global lawsuits, including cases in Mauritius, Uganda and the United States.

The lawsuits have also entangled KCB Group which lent Spencon Kenya more than Sh2 billion during the good times, but risks losing its latest loan of Sh871.2 million after the construction firm was placed under administration.

The fund, a $2 billion (Sh206 billion) asset manager backed by development finance institutions such as CDC Group and European Investment Bank (EIB), says it provided Spencon with  loans amounting to $15 million (Sh1.5 billion) between 2006 and 2007.

The loan fell due in 2009 and the construction firm was unable to repay the debt, with the founder shareholders asking ECP to convert it into equity.

This request, according to the fund, was meant to avoid a default that would have called in the founders’ personal guarantees to other creditors.

“ECP accepted to convert its loan and become a shareholder of Spencon but only on condition that the previous majority shareholders make certain commitments to ECP,” the fund said in a statement.

The conditions included an Put Option Agreement (POA) that committed the founders to buy out ECP if the fund was unable to get alternative buyers for the 37.4 per equity it acquired in the original conversion.

ECP says its interest subsequently rose to 38.6 per cent after shares of one of the founders, Kiran Saroop Sagaar, was redistributed to others as settlement for a fraud he executed in the company.

To secure their commitment to buy out ECP, the founders pledged their shares to the fund in the event they would not honour the POA.

The 38.6 per cent stake gave the fund the right to nominate four directors to the board, giving it equal representation with the founders. The board also had an independent chairman.

“In reality, however, the founders and JC Patel in particular, remained in day-to-day operational control of the business and repeatedly circumvented the need to obtain board approvals when that suited their needs,” ECP said.

The chairman was forced to resign in 2012 when he voted with ECP “in the interests of the company”, with the founders attacking his independence.

The founders in the same year forced the resignation of their Mauritian nominated director in a plan to deny the board quorum.READ MORE