Former rail firm boss on the spot over shareholding fiasco

• S. African suspected to have played major role in stakeholder impasse at the RVR

South African national and former chairman of the Rift Valley Railways (RVR) Roy Puffet remains a man on the spot as it emerges that he played a major role in fomenting the shareholder impasse now threatening to unravel the messiest privatisation scandal in Kenya’s history.

Correspondence seen by the Sunday Nation shows how Mr Puffet had, in just two months, managed to craft a complex game of deception that allowed him to play one shareholder off against another, leaving behind a boardroom composed of sworn enemies.

In the months of November and December, Mr Puffet was simultaneously negotiating to sell his shares in the shell company, Sheltam, to both Transcentury Ltd and the Egyptian private equity firm, Citadel Capital Ltd.

Just how these private equity firms allowed themselves to be manipulated in this manner is one of the most intriguing aspects of the saga.

It all started early last year when the South African readily accepted to step down from the chairmanship of RVR after running down the 900-kilometre Kenya-Uganda Railway, leaving it in a far worse state than he found it when it was managed by the governments of Kenya and Uganda.

On August 22, 2008, Mr Puffet wrote a letter formally accepting to relinquish his lead shareholder status in RVR, setting the stage for other shareholders to participate in a rights issue in which his 35 per cent shareholding in RVR would be diluted to zero.

Months later, and as the parties were set to float the rights issue to raise the money to recapitalise the company and to allow the railway to access $100 million of funds committed to the concession by leading financial institutions – the International Finance Corporation(IFC) – it emerged that under the concession agreement he had signed with the government, the man’s holdings could not be diluted.

That was how the idea of creating the new special purpose vehicle – the Kenya Uganda Railway Holding (KURH) came about. It was the only feasible way of circumventing the provision in the concession agreement that protected Mr Puffet’s shareholding in RVR from dilution.

But even as the negotiations to create KURH were going on, Mr Puffet made sure that he remained the signatory to RVR’s key documents. The employment contracts for some of its top executives still bore his signature.

He readily signed the documents committing him to stay out of KURH. According to the documents, shareholders were divided into participating and non-participating directors.

Those who decided to stay out of KURH were Sheltam, Babcock Brown and Centum. Prime Fuels, Mirambo and Transcentury became the participating directors.

Consequently, all the six shareholders mutually agreed to the KURH arrangement. What happened thereafter is difficult to tell. It is all about claims and counter claims with each party refusing to accept blame for the collapse of the discussions.

However, the following facts can not be contested.

First, Prime Fuels and Mirambo delayed signing the the KURH documents for months on end.

Second, Centum and Transcentury signed the documents.

Third, that since movement to KURH could not happen without the signatures of all shareholders, there was a very long period of inaction.

Fourth, Transcentury has claimed that Prime Fuels, which dabbles as a major client of RVR, demanded to be granted preferential treatment on trackage rights.

Fitfth, that on May 12, 2008, Centum wrote to all shareholders withdrawing its signatures from the KURH documents. This was followed by withdrawals by Babcock Brown and Sheltam in June. This long period of procrastination is what provided the perfect environment for Mr Puffet to play his game of pitting one shareholder against another.

He calculated that this was the opportune time to quickly offload his shell company to one of the shareholders quietly and leave the scene.
According to available documents, the first to be approached by Mr Puffet was Transcentury, who had by that time taken a higher profile than the rest of the shareholders in the KURH discussions.

Apparently, Mr Puffet had wanted a quick deal with Transcentury. He informed them to move fast as he had other offers.

As a matter of fact, Transcentury has said that Mr Puffet told them that he (Puffet) had been approached by Mirambo and Babcock Brown who had tried to persuade him to sell to Citadel Capital.

Keen to assume control of RVR, Trans-century easily accepted to deal with Sheltam. Transcentury calculated that by buying Mr Puffet’s 35 per cent stake, it could quickly assume the lead investor status in the company and thus obviate the need for KURH. Documents show that on October 29, 2009, Mr Puffet wrote to all shareholders requesting their consent to sell his shares to Transcentury.

At this stage, the argument that Mr Puffet had no capacity to sell the shares without the approval of the government had not come up.

The evidence also shows that during the period Transcentury was negotiating to buy Mr Puffet’s shares in Sheltam, the company was violently against the KURH option.

As it turned out, the deal between Mr Puffet and Transcentury did not happen.

Correspondence shows that when the shareholders received Mr Puffet’s request, all except Centum declined to approve the deal with Transcentury.

Seeds of discord

Still, the dealings betweeen Mr Puffet and Transcentury only served to sow seeds of discord among the shareholders.

On December 14, Mr Puffet sent another letter to the shareholders, this time requesting consent to sell to Citadel of Egypt. All the shareholders that had not consented by then sent a note to the government that they were prepared to go the KURH route.

Mr Puffet sold and took off for South Africa, leaving behind a board room of wrangling directors.