Scramble for rail firm gathers steam as Egyptians stake claim

Tension reigned at a board meeting of the Rift Valley Railways (RVR) as directors negotiated a new shareholders agreement on Thursday, the Saturday Nation can reveal.

The talks were in line with last week’s directive by the governments of Kenya and Uganda for the company to gets its house in order following reports that part of the company had been sold to an Egyptian firm.

Insiders said a section of the board strongly opposed the presence at the board meeting of representatives of Citadel Capital—the Cairo-based private equity firm currently engaged in a do-or-die -battle with the influential Transcentury Group Ltd— for the control of the 900 kilometre railway line between Mombasa and Kampala.

The wealthy Egyptians—who have bought 49 per cent shares of the majority shareholder in RVR, Sheltam Rail Company of South Africa, have insisted that they have a right to sit on the board of RVR as nominees of Sheltam whose chairman and principal shareholder, Mr Roy Puffet, still retains control of Sheltam Rail.

Board sources narrated that when the Egyptians held their ground, the section of the board walked out of the meeting, arguing that since their stand is that the share purchase deal the Egyptians had transacted with Mr Puffet was invalid- they were not ready to accept the presence of Citadel in the boardroom.

The boardroom tiff is the latest sign of the level of acrimony and mutual distrust between the parties.

It is also an indication of just how difficult it is going to be for the parties to implement the directive which the governments of Kenya and Uganda issued to the shareholders last week.

All indications are that the wrangling parties are headed for a stalemate.

On the face of it, Transcentury would appear to be in a weaker position, considering that all shareholders of the company have ganged up to support Citadel’s bid.

But the reality is that nothing can move without Transcentury’s consent. All shareholders must sign before a new shareholders agreement can happen.

If Transcentury decides to play hard ball, and a stalemate ensues, the stage will have been set for cancellation of the concession.

Citadel’s bid would also appear to be in a quandary because of the time limits and the deadlines imposed by the government for compliance with the directives.

According to the timelines, the shareholders must recapitalise the company by pumping in at least $10 million by January 25. Yet the meeting to consider whether or not to cancel the concession has been scheduled in Kampala for January 27.

Pumping in money

With the threat of cancellation of the concession hanging in the air, pumping in money has become a risky proposition for the Egyptians and the five shareholders who have supported their bid.

Neither are the options easy for Transcentury: in the event of cancellation of the concession- the group risks losing an estimated $ 9 million it spent both on acquiring the 20 per cent stake in the company and shareholder loans it has extended to RVR in the last two years.

According to the directive, the wrangling shareholders must sort out their differences within 14 days or face termination of the problematic railway deal.

They must migrate all their shares to a new special purpose vehicle known as the Kenya Uganda Railway Holdings that is registered in Mauritius.

In addition, they have to recapitalise the company to a level that will give two international lending institutions, the International Finance Corporation (IFC) and KFW of the Netherlands the comfort to release some $100 million they committed to the concession several years ago.

According to the legal document that has been prepared to make it possible for the migration to KURH—so called ‘deeds of amendment’—all the six shareholders must raise capital in KURH in proportion to their shareholding in RVR more or less similar to what happens in a rights issues.

The current shareholders of RVR are Sheltam Rail of South Africa (35 per cent), Transcentury Ltd (20 per cent), Centum of Kenya (10 per cent), Mirambo Ltd (15 per cent), Tanzania and Prime Fuels Ltd of Kenya (15 per cent).

Is there a chance that Transcentury and Citadel will reach a compromise?

Not much because both parties want control. Private equity funds tend to want to dominate especially when the company is the type that needs fresh injection of a lot of capital like RRV.

The Egyptians have said they are ready to inject the required $50 million in the concession. Transcentury has also said it is ready to fork out the needed cash.

Last month, the London-based private equity fund Helios Capital also jumped into the fray saying it was ready to pump $50 million into the concession.

In a letter by its managing director, Helios said it—together with its technical partners, America Latina Logistica of Brazil—had successfully conducted a commercial and financial due diligence and developed a detailed turn around plan for RVR.

Helios also said that it had engaged with both the IFC and KFW and that it was prepared to invest the money.

Helios is remembered for making the single largest private investment in Kenya when it put in $180 million in Equity Bank.

The investment in Equity which was made only a week prior to the 2007 elections allowed the London-based firm to acquire 25 per cent the bank making it the single largest shareholder of the business.