Toyota sells stake in Kenya IT firm after row with State – Business Daily
Seven Seas Technologies CEO Michael Macharia. PHOTO | DIANA NGILA | NMG
A unit of Japanese multinational Toyota has sold its stake in Kenyan information technology firm Seven Seas Technologies after the company went into a legal fight with the government over a Sh4.7 billion contract.
The latest regulatory filing of Seven Seas with the Registrar of Companies Company shows that Toyota Tsusho has transferred its entire stake of 9.5 percent in recent months.
A 21 percent stake held by private equity firm Actis has also changed hands. The was previously owned by collapsed Dubai-based firm Abraaj.
The shareholder exits followed a two-year legal battle between the government and Seven Seas over the cancellation of the contract to wire 98 State hospitals that, among others, allowed remote treatment or telemedicine.
“The institutional investors exited because of reputational risks. They don’t like drama,” Michael Macharia, the CEO and co-founder of SevenSeas told the Business Daily on Monday.
“I bought the shares when the shareholders said they were seeking out,” he added without disclosing the value of the stake sales.
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The share purchases have pushed Mr Macharia’s ownership in the tech firm he co-founded in 2001 with Dutchman Rob Van Hoek to near 60 percent.
Toyota Tsusho through its subsidiary, CSV Africa, a venture fund it established in 2014, bought the 9.5 percent stake in 2016 for Sh300 million, valuing Seven Seas at Sh3.2 billion at the time.
Toyota Tsusho described CSV Africa as a fund for social contribution for creating jobs and economic independence in Africa and invested in agricultural projects in Zambia and leather sewing business in Ethiopia.
The funds from Toyota Tsusho were used to expand Seven Seas’ health sector interests.
Toyota Tsusho has had a presence in Africa for nearly 100 years.
Besides the automotive sector, it is involved in Kenya in the development of the energy sector, agricultural industrialisation, oil and mineral reserves.
Private equity firm Actis got the 21 percent stake in 2019 after it acquired the rights to manage funds privately owned by Abraaj, which was the largest buyout fund in the Middle East and North Africa until its collapse in 2018.
Abraaj filed for provisional liquidation in 2018 after investors, including the Bill & Melinda Gates Foundation, accused the firm—which had stakes in Brookside Dairies and Java — of mismanaging its money.
Its top executives faced criminal charges levelled by US prosecutors and pleaded guilty to several of them, including fraud and racketeering.
Actis did not stay long in Seven Seas, says Mr Macharia, linking its exit to the multi-billion shilling suit with the Ministry of Health.
The Business Daily was unable to get an immediate comment from Toyota Tsusho and Actis over the stake sales.
In the legal fight, Seven Seas last month secured a round one win against the government after it was awarded Sh1.6 billion over the botched IT deal.
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Retired judge and now arbitrator Aaron Ringera found the State at fault in terminating the Sh4.7 billion contract that demanded Seven Seas provide the technology component of the Managed Equipment Service (MES) plan.
Under MES, the Health ministry signed contracts with five private firms in 2015 to lease specialised equipment like CT scanners to the 47 county governments that manage most medical services, in a deal praised by the World Bank at the time for its ability to be replicated elsewhere in Africa.
Seven Seas protested the cancellation, insisting the State declined to offer a Letter of Support, a security document that gives banks comfort to lend project money to firms or individuals, which is customary in a majority of State projects.
The tech firm says the Letter of Support hitch made it difficult to secure a loan from KCB Group, triggering the two-year legal suit that underlined the torturous journey of entrepreneurs working on State projects.
“And I have found that the Second respondent (Ministry of Health) was in breach of both payment obligations under the contract and the obligation to provide a government letter of support. Both defaults are material breaches of the Second respondent’s contractual obligations,” ruled Mr Ringera.
“It was the Ministry of Health’s default in providing the claimant with a government letter of support that prevented Seven Seas from achieving completion of the project,” he added.
He awarded the firm Sh1.59 billion ($13,288,091) for breach of contract, loss of profits and costs incurred after the cancellation. The tech firm received an additional Sh52 million for costs related to the suit.
The arbitrator heard Seven Seas sought funding and got offers, including equity financing for the project worth $30.8 million (Sh3.68 billion), which Mr Ringera said was more than the capital required for the health ICT deal.
Seven Seas was betting on the health sector, especially State deals, to make its next billions and drive its revenues.
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The firms in the multi-billion shilling leasing deal included China’s Shenzhen Mindray, India’s Esteem Industries, General Electric and Philips.
Seven Seas was expected to digitise the 98 hospitals, including the national referral facilities — Kenya National Hospital and Eldoret-based Moi Teaching and Referral Hospital.
This was to allow remote hospitals in places like Turkana to tap expertise from well-staffed hospitals like KNH through telemedicine.
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