Cytonn has won the first part of its battle against the regulator Capital Markets Authority (CMA) that sought to put a limit of 10 percent as the highest ratio in which the investment firm can inject into their projects.
In a ruling by The High Court Cytonn was granted stay orders against the regulator who wants Cytonn High Yield Fund (CHYF) to limit to 10 percent investments into the Cytonn managed projects.
According to regulation 16 (2) of the Collective Investments Schemes regulations, CHYF which is managed by CMA should only manage up to 10% of projects.
In the case Cytonn argues that the regulation only applies where the key governance participants in a fund, which are the fund manager, the trustee and custodian are under common shareholding, hence related.
Edwin Dande Cytonn CEO points out that where the three are related, the regulation reduces fund exposure to in-house projects to 10 percent, in an effort to protect investors from potential in-house dealings.
“But in the case of CHYF, the Fund Manager – Cytonn, the Custodian – NatBank, and the Trustee – SBM, are not related. Consequently, the limit does not apply to the fund. The policies of CHYF, as approved by CMA, specifically clause 7.4.11 of the Information Memorandum does not allow the fund to invest in projects not managed by Cytonn,” says Dande.
The directive by CMA was issued June 3, 2020, ordering the Trustee, National Bank, not to allow any investments into Cytonn affiliated loan notes until the Trustee receives a go-ahead from the CMA. The effect would have forced Cytonn to invest in other developers, which Cytonn contends is risky and would contravene the Fund’s rules.
“The purported malicious directive dated 3rd June, 2020 and the subsequent email dated 15th June, 2020 limiting the 1st Interested Party, to invest not more than 10% of funds in its portfolio and subsequently freezing any investment of the funds held in SBM Bank awaiting a further directive from the Respondent be and is hereby suspended pending the hearing and determination of this application,” ruled Justice F Tuiyott.
Also, the court has issued a conservatory order staying the CMA’s decision to limit the investment of the CHYF’s portfolio funds to 10% and its further directive through the Trustee not to allow theCytonn Asset Management Ltd to invest any further funds held at SBM Bank and in Cytonn affiliated notes pending the hearing and determination of the Application.
The case will be heard on October 6, 2020.
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