How investment errors plunged firm owned by Kibaki allies into debt

The idea of starting Trans-Century was born during a round of golf.

Four of some of Kenya’s astute millionaires were on the fairway at the Muthaiga Golf Club in Nairobi.

They were not necessarily Kenya’s finest golfers, but the four players regularly whiled away time on the fairway either at Muthaiga or Karen.

The year was 1995 - or thereabouts - and the Kenyan economy had recorded a 4.9 per cent growth, up from 0.2 per cent in 1993.

It was a positive sign that the future was looking bright.

Makerere University-trained entrepreneur Zephania Mbugua, a man with interests in chemicals and the manufacturing of breakfast cereals, was one of the dreamers.

The other was the University of Surrey, UK-trained chemical engineer James Gachui, now deceased.

Zeph, as his friends call him, would later tell an investors’ meeting how the thought of forming Trans-Century came about.

“We felt we could have a greater impact if we came together and put our money together,” he said.

IDEA BECAME REALITY

The idea of Trans-Century as an investment company, thus became a reality.

A member of the elite Muthaiga Golf Club, Mr Mbugua knew who to approach in the club dominated by millionaires.

The initial aim was to raise Sh50 million in 18 months.

“We ended up at about Sh14.3 million and it got to a point where we said we must start a company,” Mr Mbugua once said.

The four then brought in their friends with each allowed to nominate one friend.

Each was to contribute Sh1 million and soon the Muthaiga group – an elite group that quietly felt at home in Mr Mwai Kibaki’s Democratic Party (DP), found its springboard.

From the start, Trans-Century was in an investor-induced slow play – with the original members putting their millions in companies where they had little control.

CASTLE BREWERY KENYA LTD

Registered with a nominal capital of Sh500,000 in 1997, the company bought its first minority stake in Castle Brewery Kenya Limited, a local subsidiary of South African Breweries (SABL), which was testing the local waters.

However, the Castle brand was unable to break the 75-year-old monopoly that Tusker enjoyed.

With time, SABL agreed in a boardroom deal to shut down its subsidiary in Thika and leave East African Breweries Limited to sell SABL brands under licence.

Trans-Century had backed the wrong horse. Although the company never lost any money in the beer deal, the shareholders agreed to never go for anything less than a controlling stake in any company in the future.

NARC CONNECTION

The collapse of the Castle deal in May 2002 took place at a time when Kanu was on the verge of losing power and in a few months, the Mwai Kibaki-led Narc was set to win the December 2002 elections.

With a Kibaki victory, Trans-Century investors were politically in the right place.

Undeterred by the Castle misstep, Trans-Century picked up the pieces and started looking for other opportunities and soon became Kenya’s richest investment club.

At the head of the group was Mr Gachui, a man with a wealth of experience in the petroleum industry and who was known for his philanthropic contributions to Rotary International.

From his fourth floor office at Nairobi’s Longonot Place, Mr Gachui watched the initial Sh24 million grow to Sh8.6 billion by December 2009.

By then, the engineer had also placed his bet in the telecoms industry by founding Wananchi Online, then one of the country’s largest Internet service providers, together with Ms Njeri Rionge and Mr Joseph Mucheru (now the ICT Cabinet Secretary).

Mr Gachui knew his way in investor circles. He had single-handedly secured private equity funding from Aureos Capital, a global private equity fund, to set up Seven Seas, an IT services firm.

Trans-Century had ambitions to become an equity fund, too - buying dead or dying companies and reviving them.

With its headquarters on the seventh floor of Longonot Place, three floors above Mr Gachui’s office, the company seemed set for big deals.

It had the appetite and the money for big business deals and, equally important, it was politically connected.

EAST AFRICAN CABLES

In what was to become one of the biggest ventures, nay gambles, the group decided to buy a controlling stake in Naushad Merali’s East African Cables when its shares were trading at Sh12.

Mr Merali, an ubiquitous investor, had bought the company in 2000 from a British holding company, Delta Group, for Sh110 million.

As he planned to hive off East African Cables from his Sameer Group, Trans-Century was waiting to buy it.

“There is an unwritten agreement among the founder shareholders to bring attractive investment opportunities to the attention of the group,” wrote Mr Tony Wainaina, a former Trans-Century CEO, in the company’s biography.

One of President Kibaki’s Narc government’s pet project was rural electrification.

Through this, East African Cables stood to make billions if it aligned its business with the government’s vision.

One of Trans-Century’s founders, Mr Eddy Njoroge, another Chemistry graduate from Makerere and close associate of the then President, had been appointed the KenGen managing director.

By default, Trans-Century was placed at the doorstep of good business – manufacturing electrical cables, conductors, transformers and switch gears.

The housing and telecommunication boom of the Kibaki presidency also contributed to Trans-Century’s fortunes as the firm also supplied copper wires and data cables, among other items.

AFRICAN NETWORK

It also purchased new ventures in Arusha, Tanzania (Tanelec), which manufactured transformers, a factory in Dar es Salaam that made copper wires and aluminium conductors and a factory in Johannesburg (Kewberg Inc), which made specialty cables.

The final entry was in the Democratic Republic of Congo, where it bought the country’s sole cable company, Cableries du Congo.

As the stock market boomed from 2004, Trans-Century’s shares of the NSE-listed fortune tree, East African Cables, shot like a rocket from Sh12 to an all-time high of Sh614.

Pundits accused insiders of share manipulation, but the then Nairobi Stock Exchange could do little. It was not a crime.

The shareholders then approved a share-split in 2006 of 10 to 1, adding more cash to their balance sheets.

This week, the share was trading at Sh9. Shortly after the share split, the group decided to buy a stake in Rift Valley Railways (RVR) as part of Sheltam Railways, a consortium led by a South African, Mr Roy Puffet.

BIGGEST BLUNDER

The move would turn out to be Trans-Century’s biggest blunder.

How Mr Puffet managed to convince the Kenya and Uganda governments to hand him the running of the Kenya-Uganda railway for 25 years has intrigued observers.

As it later turned out, he had no capital and only had briefcase companies that he had registered in Mauritius and South Africa.

Trans-Century sank its money into the Sheltam-led consortium, RVR, which was registered in Mauritius.

It got a 20 per cent stake, giving it a crucial hold on the Kenya-Uganda railway.

Overnight, Trans-Century had become an inspirational story - or so it appeared.

However, the railway business became tricky as the expected turn-around was muddled in a web of deceit and boardroom wars.

Soon, Mr Puffet outwitted Trans-Century by selling his company to an Egyptian equity fund, Citadel Capital, which desired to have a controlling stake in RVR.

Two bulls, Citadel and Trans-Century, were now in the same kraal.

“The Egyptians want to buy all of Sheltam and inject the money and stop the other shareholders from participating,” Mr Ngugi Kiuna, Trans-Century’s representative on the RVR board, complained at the time.

MILLION DOLLAR INVESTMENT

By then, Trans-Century had already invested $11 million in the firm.

Citadel had the capital and had committed $150 million over the next five years to RVR – and were bringing to the table what Sheltam lacked: financial power.

Overall, RVR required Sh15 billion to turn it around.

Did Trans-Century have this kind of money? Whatever they had, they were outwitted by the Egyptians and in the new arrangement, the North Africans took 51 per cent, while Trans-Century increased its shareholding to 34 per cent.

Mr Puffet had made his money without breaking a sweat, but Trans-Century, which had initially pumped in Sh668 million for a 20 per cent stake in the consortium, a further Sh581 million in 2010, another Sh740 million in 2012 and Sh924 million in 2013, was in a quandary.

Even with these problems, Trans-Century’s revenue in 2010 had touched Sh6.8 billion.

It still touted itself as a company ready to take advantage of Kenya’s expanding economy and infrastructural growth.

Externally, it was billed as a company that was slowly becoming a regional colossus with leaders who seemed to not only understand the financial markets, but also had the Midas touch.

But those PR stunts hid the main problems within the company. As it turned out, good money had gone down an investment drain. Finally, Trans-Century sold its stake to Citadel for Sh3.8 billion.

Its CEO, Dr Gachau Kiuna, told the media they did not lose any money. Perhaps.

Dr Gachau is Mr Kiuna’s son. He left the company two weeks ago.

NAIROBI SECURITIES EXCHANGE

Eager to raise capital, and expand in new frontiers, the shareholders decided to do two things: Float shares on the Nairobi Securities Exchange and issue a $80 million (Sh8 billion) convertible Eurobond through its new Mauritius-registered outfit, TC Mauritius Holdings Limited.

By this time, Trans-Century had secured an exclusive licence to distribute Avery weighing machines.

It had also won a multi-million weighbridge tender and served more than 300 industrial and government agency customers.

It had also formed Chai Bora, which blended and packaged tea.

Taken in 2011, the Eurobond is set to mature in March this year and how to repay the money is the biggest problem that the company faces today.

Trans-Century was valued at Sh13.35 billion upon entering the stock market in July 2011, when it listed by introduction some 267 million shares at Sh50 each.

The share price climbed to Sh57 before starting to roll back. Today, it is worth Sh2.4 billion.

Today, Trans-Century owes more than its owns.

“I struggle to understand how TransCentury, a company whose market capitalisation is Sh2.4 billion, is going to raise Sh8 billion to redeem these deep ‘out of the money’ convertible bonds,” Mr Aly-Khan Satchu, an investment analyst, told the Business Daily last week.

With the share price of Trans-Century nose diving, the main investors have lost more than Sh5 billion in paper value.

Former Kenya Revenue Director-General Michael Waweru lost Sh772 million, Mr Peter Kanyago (Sh743 million), Mr Zeph Mbugua (Sh650 million) and Mr Eddy Njoroge (Sh641 million).

At the moment, the shareholders are waiting for March 25, when the Sh8 billion bond falls due. Perhaps, lady luck might smile on them.