After protracted negotiations, politically-influential private equity firm TransCentury Ltd and wealthy Egyptian firm Citadel Capital, have agreed to accommodate each other in the shareholding of the troubled Rift Valley Railways Ltd.
The negotiations in London were mediated by the International Finance Corporation — the World Bank’s private sector lending arm.
At the end of the day, it is a win-win for the protagonists.
The Egyptians will get what they have always wanted, namely, control of the company. They will now have 51 per cent shares in the company.
TransCentury will get 14 per cent additional shares — moving its stake from the current level of 20 per cent to 34 per cent.
The remaining 15 per cent shares of the company will go to Uganda.
It is not clear from the joint statement the parties put out on Tuesday whether TransCentury will pay for the additional shares or whether it is sweat capital for accepting to give up the battle with the Egyptians.
The fate of the minority shareholders, Prime Fuels Ltd, Centum — both of Kenya — Mirambo of Tanzania and Babcock & Brown of Australia is also not clear.
One theory has it that in the build-up to the London negotiations, the minority shareholders had already signed to sell to the Egyptians.
Another school of thought has it that the parties have agreed to float a rights issue in which the minority shareholders will not take part.
How did IFC manage to get the parties to agree? IFC went to the London meeting wielding the big stick.
It was the only party with the powers to frustrate the Egyptians.
Until IFC gave the clear nod to the deal under which the Egyptians purchased Sheltam from Mr Roy Puffet, Citadel’s interests remained at risk.
They were going to be forced to endure the inconveniences of having to rely on Mr Puffet to sign RVR documents on their behalf.
They had paid Mr Puffet most of the money for his shares in advance and wanted him out of the equation as quickly as possible. This explains why the Egyptians were ready to listen to IFC in London.
The stakes for the IFC itself were also high. In the first place, the Ministry of Finance had appealed to them not to give the nod to the purchase by the Egyptians of shares of Mr Puffet.
YET IF THEY DID WHAT THE TREASURY wanted, the process of restructuring of the concession was going to take much longer. The concession faced the risk of unravelling.
A collapse of the concession was a prospect the IFC was not willing to countenance, having itself invested $10 million (Sh770 million) in RVR .
And, with the Tanzania Railway concession — which is also stewarded by the IFC — on the brink of collapse, the IFC found itself more inclined to save the Kenyan concession.
Agreeing to accommodate one another is one thing. Raising money to buy new locomotives and to rehabilitate the railway line will be a taller order.
Just the other day, the board of RVR made a capital call in which shareholders had to raise a total of $10 million.
As at the closing date of the call on February 5, 2010- the company only received $5.6 million from the shareholders.
Apart from the Egyptians who put in $3.5 million, most of the shareholders made contributions by converting expensive shareholder loans they had extended to RVR into capital.
As it turned out, most of the money raised went into paying outstanding concession fees to Uganda and Kenya. Very little went into the business itself.
According to a recent board paper, all its locomotives have missed the mandatory overhaul service.
Large sections of the track between Nairobi and Mombasa are on speed limits. Fuel expense have hit the roof.
Railway engineers will tell you that when you have to observe speed limits over such long distances, you consume as much fuels as driving a car on first gear between Mombasa and Kisumu.
With cargo handling at Mombasa hitting 1.7 million tons last year, RVR has a lot of potential in terms of profits.
Uganda will sooner or later need a reliable means of transporting its crude oil to the nearest refinery or port.
Kenya risks losing its advantage as the hub of business if RVR is not revived. Already, there are reports that Uganda is funding a study on the feasibility of building a single user port in Tanga.
RVR must be revived at all cost.