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Kenya’s Atlas saga reveals a weak regulator

By Morris Kiruga, in Nairobi
Posted on Friday, 3 May 2019 11:13

Geoffrey Odundo, Chief Executive of the Nairobi Securities Exchange. REUTERS/Thomas Mukoya

The Nairobi bourse finally delisted logistics firm Atlas Support last week, years after the company effectively collapsed and disappeared with about Shs. 400million owed to creditors.

The story of the firm, which had been cross-listed on the Nairobi and London stock exchanges, shows how Kenya’s capital markets regulator lacks teeth and options.

Atlas Support, which was domiciled in Guernsey but headquartered in Kenya, was listed in Nairobi in December 2014.

  • Its primary business was providing logistics support for the oil and gas industry, but it also had subsidiaries in other sectors.

Founder and CEO Carl Esprey said at the time that the company had invested Shs. 1.4billion and planned to invest another Shs. 4.5billion in the next five years.

It had an initial market capitalization of Shs. 4.9billion but quickly lost value, falling from Shs. 11.5 to Shs. 1.05 by the time it was suspended in May 2017.

  • Within months of its listing, Atlas sold its Kenyan subsidiaries and shifted base to Ethiopia.

Its executives blamed the move on “The downturn in the oil and gas industry, market adjustments and the failure of certain key clients to settle debts, together with increasing creditor pressure”

  • Some of the creditors included the Turkana County Government, which was owed Shs. 1.5million.
  • They had all invoiced Atlas’ Kenyan subsidiaries-Adarn Logistics Kenya, Ardan (Medical Services), and Ardan (Civil Engineering) — which were all liquidated in December 2015.

But the move to Ethiopia was equally short-lived. Atlas was forced to sell its glass-making subsidiary, Teap Glass PLC, to the other shareholders after the Ethiopian tax and customs unit confiscated $2.4 million the firm had in its bank account with the Development Bank of Ethiopia. Atlas said it had been “subjected to a complete injustice” by the Ethiopian government.

After burning its fingers in East Africa’s largest economies, the company bought a minority stake in Nigerian betting firm BonanzaWin in August 2016. It also hired Willem Bodenstein – a slot machine and sports betting specialist – as COO to drive its move into the gaming business.

  • By then, it had already been suspended from the London Stock Exchange after its nominated advisors resigned.
  • It was then suspended in Nairobi in May 2017, and the next month, its nominated advisors in Kenya, I & M Burbidge Capital, also resigned.
  • By the time Atlas Support was delisted in Nairobi in April, it had been struck off the company register under Guernsey laws and disappeared. Its website is now defunct, and creditors in Nairobi have no way to recover their money.

The company’s founder, Carl James Esprey, reappeared in 2017 with African Cannabis, a company he co-founded with Kojo Annan (the son of former UN secretary-general Kofi Annan).

Exchange authority lacks authority

In the last few years, the Capital Markets Authority has only delisted two other firms for breaching regulatory rules.

  • A. Baumann had 381 shareholders and a market cap of Shs. 42.6 million
  • The other, Hutchings Biemer, had 153 shareholders and a market cap of Shs. 7.3 million at the time. Hutchings Biemer had been suspended in 2001 for not complying with the rules, while A. Baumann was first suspended in 2008.

The Nairobi bourse’s attempt at getting smaller firms to list has been underwhelming, even as many already listed firms are struggling. There are now only four firms left in the Growth Enterprise Market Segment (GEMS) after Atlas’ delisting.

  • Only one of them, Flame Tree Group, is trading at above Shs. 2.
  • Another, Kurwitu Ventures, which provides Sharia compliant investment products, is not trading at all. Kurwitu last made a profit in 2014. In 2017, it only made Shs. 317 in income.

Uncreative destruction

A review by The Standard found that 27 out of 64 listed counters are currently trading at below the price of a tomato 

Loss-making firms such as Uchumi Supermarkets, Mumias Sugar, and HomeAfrika are trading at less than 53 cents.

  • The list also includes government firms Kenya Power, National Bank, Housing Finance, and investment firm Britam.

The Nairobi bourse has been stuck in a rut, as it can’t outrightly delist the firms without worsening the confidence crisis in the capital markets. One option the CMA is considering is creating a secondary platform for the shares of struggling firms to trade.

The platform would primarily work to rehabilitate firms before they can regain their listing on the primary market.

Bottom line: Until the NSE regulator gets tough with struggling firms earlier in the process, the Atlas story will be doomed to repeat.


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