Frantic ‘multi-party’ negotiations are ongoing to save Rwandans who booked homes in the proposed $12.6 million (about Rwf8.7 billion) Palm Estate project in Kigali after an apparent breakdown in trust between Ujenge Group, the developer, and the financial institutions funding the venture.

Shelter Afrique (Shaf) and EcoBank, the co-financiers of the project who contributed $6.5 million (about Rwf4.5 billion) and $2 million (about Rwf1.4 billion), respectively, accuse Ujenge of failing to raise its share of the equity and are pushing the developer to quit the venture and give way for a new investor.

The first phase of the project consisting of 32 affordable modern apartments sold out in pre-sales and owners have paid up to 80 per cent of the unit value but these developments have scared them into thinking they could lose their property.

The New Times understands that since December, last year, Rwanda Development Board (RDB) has been presiding over secret negotiations involving all concerned parties in a bid to circumvent a costly court battle.

None of the parties involved were willing to comment on the development for fear of jeopardising ongoing negotiations, but this newspaper obtained vital documents that explain the history of what started as a great project but is now mired in controversy.

Background

According to the confidential documents, in 2011, Patrick Sebatigita, the proprietor of Ujenge Group, conceived the idea of developing Rwanda’s first condominium project on a 7,000-square-metre piece of land in Kagugu, an upscale suburb of Kigali.

Palm Estate would be the venture’s name that would be implemented in two phases to the tune of $12.6 million. The first phase would have 32 apartments, while the second would consist of 103 units, eight penthouses and a swash of commercial space.

Ground work for the first phase started in November 2011; the phase would cost about $2 million and would be essentially financed through pre-sales of the 32 proposed apartments.

Prices of the apartments ranged from Rwf28 million (two bedrooms), and Rwf35 million and Rwf50 million for small and large three-bedroom units, respectively. The project sold out.

According to the plan, the first phase would be completed in October 2013 and owners would be handed full custody of the houses.

However, by due date, the project was far from complete.

Last week, The New Times visited the site and found that construction works-post indicated that the project should have been executed in 24 months but there wasn’t any activity going on. A hang-on labourer said work stopped over six months ago.

Buyers are worried; they have hired lawyers to sue the developer. Most of them have paid up to 80 per cent of the houses’ total value with the balance payable on completion and handover.

However, this newspaper has found out that the project’s failed completion is not entirely the fault of the developer, Ujenge, at least, according to secret correspondences seen.

Apparently, one of the co-financiers of the project, the Nairobi-based Shelter-Afrique, has frustrated the developer’s efforts to mobilise equity from two different interested investors, TLG and Phatisa.

The correspondence between developer and Shaf indicate a total collapse of trust between the two parties, delayed disbursement of the money and other shenanigans have seen the project fail to meet its completion targets.

Delays emerge

Real estate experts say to successfully implement such big projects, developers must have the money in place first. It appears that Ujenge embarked on implementation before mobilising the required resources.

According to documents, the loan processing, an imposed change in design of the estate by City of Kigali authorities and the delayed disbursement of the money from Shaf resulted in the loss of over six months’ worth of project progress.

Documents obtained show that Ecobank disbursed money to the developer in two batches; one in September and another in October 2012.

However, their co-financier, Shaf, disbursed the first installment in December 2012 (two months after signing the loan). The second disbursement came in May 2013.

To raise its own equity, Ujenge started seeking an investor since the proprietor couldn’t raise money on his own. Sebatigita, the winner of the RDB best SME award in 2010 and 2011, is the sole proprietor of Ujenge.

Equity problems

In September 2013, Ujenge contacted and initiated negotiations with a potential investor, TLG capital, a London-based private equity firm that had showed interest in the Palm Estate project.

On October 27, 2013, TLG signed its terms of investment and, on November 17, the equity firm’s representatives came to Kigali to carry out due diligence on the project.

On realising that Ujenge as a company didn’t have its own equity as required and that it was combing the market for an investor, Shaf started developing mistrust for the developer in the process poisoning their working relationship.

On November 26, 2013, Shaf conducted a secret audit of Palm Estate project without the developer’s knowledge and even reportedly refused to share the audit’s findings with Ujenge.

Meanwhile, given that Ujenge could not raise its own equity, it started negotiating for a project restructuring to allow for entry of an equity investor, in this case TLG but whose entry both Ecobank and Shaf had to bless.

On January 17, last year, Ujenge requested Ecobank for a no-objection letter which the bank provided on March 12, 2014, but also advised the developer to get the same blessing from Shaf.

However, Shaf refused to grant a no-objection stand that would guarantee TLG’s entry; the move reportedly frustrated the developer who badly wanted to expedite the project’s progress.

On March 17, last year, a meeting between Ujenge and Shelter Afrique took place in Nairobi as pressure from first phase clients mounted.

During the meeting, Shaf demanded that Ujenge exits the venture since he couldn’t raise his own equity contribution. Ujenge agreed to exit in the interest of project success.

But that same day, shortly after the meeting and without Ujenge’s knowledge, Shaf wrote to the government of Rwanda expressing its concern about the developer.

In April, another investor, Phatisa, a South African-based equity firm, made contact with Shaf through Gatestreet Africa that had been mandated by Ujenge, on the possibilities of investing equity in the Palm Estate project.

That effort, too, went to naught.

Meanwhile, on June 14, TLG petitioned RDB to help clear its way into the Palm Estate project.

The standoff deepened and, on September 14, Ujenge met house buyers in the project’s first phase. They were informed that unfinished works were about 5 per cent, which required $460,000 to complete.

Ujenge petitions RDB

The clients agreed to mobilise money to complete the unfinished works but on condition they got their houses pronto.

While a good idea, handover of houses is impossible because the land titles are held as security by the banks (Ecobank and Shaf).

That revelation sent shockwaves among homebuyers who realised they risked losing their property if the developer failed to settle his loan obligations with financiers.

Clients rushed to find lawyers but the developer rushed to RDB to seek mediation. That was on December 16, 2014.

Since then, negotiations involving all parties have been silently ongoing. The developer wants the financiers to allow restructuring of the project and free the first phase from the mortgage obligations and allow owners to have their houses.

Ujenge also wants Shaf to allow for entry of a new equity investor to work with the financiers to develop the second phase of the project. The case filed in court by the home buyers is on hold hoping the negotiations will be fruitful.

On Monday, a meeting chaired by RDB sought to have parties clear a proposed equity investor who would provide Ujenge’s share of the equity but no conclusion was reached and a follow-up meeting has been set for Friday.

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Timeline to ujenge’s woes

In March 2012, Ujenge Group director Sebatigita approached Shelter Afrique (Shaf), a pan-African finance institution that exclusively supports the development of the housing and real estate sector in Africa, with a proposal to finance the project.

Shaf agreed to be part of the project and in June 2012, approved the financing request but on condition that the project land would be used as collateral for the loan of up to $8.5 million to which Ujenge agreed.

It was agreed the money would be wired through EcoBank, which would also process the land collateral. However, when EcoBank reviewed the project, it also developed interest in being a part of the venture.

A co-financing arrangement was reached in which Shaf would provide US$6.5million while Eco-bank provided $2 million. The balance would be Ujenge’s own equity contribution to the project.

On October 9, 2012, the then Shaf Managing Director, Alassane Bâ and Ujenge Managing Director Sebatigita appended their signatures on the US$6.5million loan at Shaf’s headquarters’ in Nairobi.

editorial@newtimes.co.rw