Basajjabalaba defaults on Shs. 57B loan , trouble as Kenyan firm Moves to Seize KIU

City businessman and billionaire, Hassan Basajjabalaba could lose a significant part of his Kampala International University over UGX 57 billion loan dispute after the High Court in Kampala ruled in favor of Housing Finance Company Limited in a high-stakes financial dispute.

The ruling, which centers on a multi-million-dollar loan agreement gone awry, has sent shockwaves through Uganda’s business and academic sectors.

In 2010, Hassan Basajjabalaba, a prominent entrepreneur and the proprietor of Kampala International University (KIU), embarked on an ambitious project to expand the university’s operations in Kenya. The plan included constructing new lecture halls, administration buildings, student hostels, and other facilities at the university’s Kitengela campus in Kajiado County, Kenya. To finance this ambitious expansion, KIU sought a loan of $15 million from Housing Finance Company Limited.

The financing, however, did not go as smoothly as planned. Housing Finance Company Limited agreed to provide $10 million, with the understanding that the remaining $5 million would be syndicated with another financial institution. KIU reluctantly agreed to scale down the project’s scope to fit within the available funding. The loan was secured against several of KIU’s prime assets, including 62 acres of immovable property in Kenya and revenue from the university’s escrow accounts.

While the university expected the funds to be disbursed in structured tranches, it later alleged that Housing Finance Company Limited failed to release the final $3.7 million, which it claimed was crucial for completing the project. This financial shortfall caused construction to stall, forcing contractors to abandon the site, and leaving the expansion project incomplete.

KIU accused the bank of breaching the loan agreement, misrepresenting its financial capacity, and overcharging interest on the disbursed amount. According to KIU, the delayed payments and missing funds led to accumulated financial losses, further exacerbating the university’s financial struggles.

Housing Finance Company Limited, however, disputed these claims. The bank argued that it had fully honored its obligations under the agreement, releasing funds based on project milestones rather than pre-set timelines. Moreover, it contended that KIU had voluntarily revised the project scope to fit within the available $10 million, meaning the additional $5 million was never guaranteed.

As tensions escalated, both parties agreed to arbitration in Kenya. The arbitration tribunal ultimately ruled in favor of Housing Finance Company Limited, determining that KIU was indeed indebted to the bank and that there was no binding commitment to provide the additional $5 million.

The tribunal’s Final Arbitral Award stated that KIU owed $12.7 million, including accrued interest, to Housing Finance Company Limited. This ruling was subsequently upheld by the High Court of Kenya, which dismissed KIU’s appeals at various levels, including the Court of Appeal and the Supreme Court of Kenya.

Despite these legal setbacks, KIU remained defiant. With the arbitral award now enforceable in Kenya, Housing Finance Company Limited moved to seize KIU’s collateral assets, including its properties in Kajiado County. Meanwhile, KIU contested the enforcement, arguing that the Kenyan High Court’s decision should be the final word on the matter.

Unsuccessful in its attempts to fully recover the debt in Kenya, Housing Finance Company Limited took its fight to Uganda, where KIU holds vast assets, including its main campus in Kampala. The bank filed an application before the High Court of Uganda, seeking to have the arbitral award recognized and enforced as a decree of the Ugandan court.

KIU strongly opposed the move, contending that since the award had already been enforced as a judgment of the Kenyan High Court, Uganda had no jurisdiction to recognize it again. KIU’s legal team argued that allowing the enforcement in Uganda would violate public policy, amounting to “double enforcement” of the same debt across different jurisdictions.

However, the High Court in Kampala disagreed with KIU’s arguments. The court ruled that an arbitral award does not lose its enforceability across jurisdictions simply because it has been converted into a court judgment in one country. Uganda, as a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, has a legal obligation to enforce such awards when properly submitted.

The ruling effectively means that Housing Finance Company Limited can now proceed with enforcement actions against KIU’s assets in Uganda, including possible seizure and auction of properties to recover the outstanding debt.

For Hassan Basajjabalaba, the ruling is a major financial and reputational blow. Losing critical assets in Uganda could destabilize KIU’s financial standing, potentially affecting students, faculty, and staff. The university, known for its expansionist approach in Uganda and the East African region, now faces the grim reality of financial constraints and potential litigation battles to protect its assets.

The ruling has also raised concerns among business and financial analysts, who warn that it could set a precedent for cross-border loan enforcements in Uganda. It serves as a stark warning to borrowers that financial agreements extend beyond borders and that lenders can pursue assets wherever they exist.

KIU has hinted at plans to challenge the decision through further legal avenues, potentially taking the case to Uganda’s Court of Appeal or even seeking diplomatic intervention. However, legal experts suggest that overturning the ruling may be difficult, given Uganda’s commitment to international arbitration laws and the New York Convention.

Meanwhile, Housing Finance Company Limited is expected to move swiftly to attach KIU’s assets in Uganda. If successful, the university may be forced to either negotiate a last-minute settlement or risk losing prime properties in the heart of Kampala.