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Gems Cambridge Schools founder Sunny Varkey exits Kenya over escalating debts

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Gems Cambridge Education founder Sunny Varkey is liquidating his school investments in Kenya, leaving behind a trail of debt.  Kenyan tycoon Peter Burugu has taken over the management of Regis School in Runda.

According to sources in Kenya, Mr Varkey’s Gems Group may have sold the majority shareholding in their sole remaining asset in Kenya the Regis School in Runda to local businessman Ernest Mureithi for just $1 (Sh124).   

Court papers and sources at Regis School have indicated that Gems Cambridge transferred 70 per cent of the institution’s shares to Dr Mureithi through his Ernestem Holdings.

NCBA Bank is demanding repayment of a Sh1.6 billion loan. Dr Mureithi, who has been Gems Cambridge’s regional director since 2016, denied the claim, insisting that he is just a CEO looking out for Gems Cambridge’s interests in Kenya.

He further denied that Mr Burugu’s Runda Gardens Development Ltd has taken over the management of Regis School, Gems Cambridge, he added, has already found buyers to take full ownership and control of the school.

On the dispute with NCBA, Dr Mureithi said negotiations are ongoing to settle out of court. 

Mr Varkey, an Indian national based in Dubai, opened his school’s first East African campus on Magadi Road in Karen, Nairobi,11 years ago. Despite attracting hundreds of learners who have collectively paid billions of shillings over the past decade, Gems Cambridge has irked some firms it entered into contracts with as the deals have been broken, leaving debts of over Sh2 billion.

The latest entrant is Runda Gardens Development Ltd, a firm owned by Mr Burugu and his family, which built Regis School’s facilities and is now at risk of losing close to Sh1 billion incurred in construction costs. A government valuer who calculated the amount of stamp duty due placed the value of the property at Sh795 million in 2019.

Mr Burugu’s real estate firm further obtained a Sh17.6 million loan to pay Regis School workers in October and November last year. That debt remains unpaid.

When Gems Cambridge started operations in Kenya, it signed a deal with real estate firm Goodison Sixty One School Ltd to set up the Karen school. Gems Cambridge wanted the Karen development to be a near replica of Wellington International School in Dubai, but with slight modifications.

Under the agreement, Goodison was to lease the building to Gems Cambridge Education’s local subsidiaries to recover construction costs. Goodison spent Sh3 billion for the project, which was expected to be recovered from Gems Cambridge.

Goodison Sixty One subcontracted experienced architectural firm Symbion Kenya Ltd to design the school and help put it up.

The Dubai group started to complain about the quality of the Karen facilities shortly after Gems Cambridge International School opened for its first term. Goodison pushed the blame to Symbion Kenya, and a legal battle ensued. Arbitrator Paul Ngotho in February 2016 ordered Goodison to pay the Sh131 million claimed by Symbion.

This meant that Goodison was expected to pay and recover the cost from Gems Cambridge. Attempts to challenge the arbitration award in court were dismissed by Justices Fred Ochieng and Francis Tuiyott. As Justice Tuiyott was closing the door on Goodison’s appeal, Gems Cambridge was being introduced to Mr Burugu.

After meeting with the Dubai investors, Mr Burugu struck a deal similar to the Goodison one; build a world-class facility and lease it back to Gems Cambridge to set up Regis School, Runda.

Gems Group had also entered into negotiations for the purchase of Hillcrest School from Fanisi Capital, which had bought it from the family of former politician Kenneth Matiba.

The Dubai investors eventually paid Sh2.6 billion for Hillcrest in 2019. Shortly after, they closed the Karen school and moved students to Hillcrest.

To finance the purchase, Gems borrowed Sh1.3 billion from NCBA Bank. In January 2022 Gems sold Hillcrest to a rival, Braeburn, for an undisclosed amount. By the time of the Hillcrest acquisition, a deal had also been struck with Mr Burugu who built a facility in Runda.

Gems signed a 30-year lease with Mr Burugu, but details of the costs remain a secret. When Nation contacted Mr Burugu, he refused to reveal the value of the deal but confirmed that a contract was signed in August 2019. 

A Lands ministry valuer assessed the stamp duty due from the leasing deal at Sh31.8 million, which was to be paid by the Gems group within 30 days. The Gems group was targeting a January 2021 opening date.

But the stamp duty remained unpaid over a year later, accumulating penalties of Sh3.2 million.

In November 2021 Mr Burugu’s firm was furnished with a copy of a lease agreement purporting to grant Gems Cambridge and its Regis School an exemption on stamp duty. It was then that Mr Burugu’s firm discovered that Gems Holdings Africa had transferred 70 per cent of its shareholding in Regis School for a consideration of $1.

Somehow, the Gems group had managed to alter the lease contract without involving Runda Gardens Development Ltd and held verbal non-recorded conversations with the collector of stamp duty that resulted in the tax waiver.

The contract was dated August 27, 2019. But the altered document which led to a stamp duty waiver was dated November 8, 2019. Under Kenyan law, stamp duty assessment can only be challenged by filing a case at the High Court after paying the amount demanded by the collector.

Runda Gardens Development Ltd demanded that Gems Group adhere to the original lease deal of August 27, 2019, and pay the Sh31.8 million stamp duty to avoid legal trouble. When Regis School failed to adhere to the lease, Mr Burugu’s firm termed the contract as frustrated hence null and void.

Runda Gardens Development Ltd opted to let Regis School continue operating under a regular tenancy deal with quarterly payments. By December 2022 Regis School was still behind on rent payments and was now delaying workers’ salaries. Runda Gardens Development Ltd was owed Sh19.55 million at the time.

The landlord had also lent Regis School Sh17.6 million to pay salaries in the months of October and November 2022. Regis School promised to repay the loan by end of November. Three days before Christmas, Regis School. through Dr Mureithi, sought to borrow more money to pay December salaries.

In the December letter, Dr Mureithi allowed Runda Gardens Development Ltd to use Gems equipment and property as security, meaning an auction could be done if the debts were unpaid at the end of January 2023.

The school revealed that it is searching for a new buyer.

But as the search continues, parents, students and workers at the school remain in limbo over their future with Regis School.

A new dispute is brewing, as Dr Mureithi collected over Sh10 million from a section of parents in school fees for the first term of 2023 despite Mr Burugu’s temporary management takeover.

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