TransCentury faces off with Citadel in battle for RVR

Warring shareholders in the troubled Rift Valley Railways (RVR) will face off this morning at an arbitration meeting in London amid hardening of positions that threatens the quick turnaround of the firm.

The meeting is convened by the International Finance Corporation (IFC), which is trying to broker a truce between two investment firms—TransCentury and Egyptian private equity firm, Cidatel Capital.

The twin Private Equity firms have in the past four months been battling for a position of anchor shareholder in the rail firm after the Egyptian firm acquired a 17.5 per cent stake in November when it bought 49 per cent of Sheltam, the operator’s lead investor.

RVR won a 25-year concession to run the 1,200 kilometre Kenya-Uganda Railway in 2006.

The Citadel buyout was opposed by TransCentury which has a 20 per cent stake in the firm and has threatened to block it in courts—prompting IFC to step in the tussle amid claims that Uganda and Kenya had taken sides on the issue.

It emerged on Thursday that Cidatel was heading to the meeting with one condition — an approval of the buyout from the shareholders, financiers and the two governments.

It has also emerged that the Egyptian firm has completed negotiations and paid for the entire 35 per cent stake held by Sheltam for $9.7 million (about Sh720 million) and that the money is in an escrow account.

The revelation is said to have infuriated TransCentury which is insisting that Cidatel is in the rail firm illegally and could not assume the role of investor.

Sources close to TransCentury says the firm will go for an arrangement where all the shareholders will be transferred to a special purpose vehicle with equal rights, an arrangement that Cidatel has ruled out, saying it only invests in companies in which it has a controlling stake.

High stakes

The spat between the two PEs is threatening the turnaround of RVR, which since been granted the concession three years ago has failed to live up to the expectation of Kenya and Uganda governments.

It remains to be seen what will come out of the high stakes London meeting where both the Ugandan and Kenya governments have sent representatives.

Kenya is represented by Investment Secretary Esther Koimett and transport permanent secretary Cyrus Njiru.

Cidatel interests will be taken care of by its managing director, Mr Karim Sadek, and a top executive, Mr Al Barbary, while TransCentury will have its managing director, Dr Gachao Kiuna, and director Mr Ngugi Kiuna at the talks.

“The deal is done and sealed and all Citadel Capital is waiting for now is IFC’s consent,” said Mr Sadek, in an email to Business Daily.

“Citadel Capital is keen to build cohesion with all RVR shareholders and looks forward to the IFC’s consent,” he added.

TransCentury, on its part, preferred to keep its cards close to its chest only saying through Mr Ngugi Kiuna that it has its expectations and demands.

While the meeting is important for the wrangling share holders, IFC also seeks to salvage the concession as it seeks to recover up to $10 million (Sh750 million) already disbursed to RVR.

The IFC also said it would reconsider its help to the firm if the shareholders fail to reach an agreement and “put their house in order.”

“IFC will not be disbursing any further loans to RVR until shareholders present a viable plan to turn the business around,” said a statement from IFC’s Communications representative in Kenya, Houtan Bassiri.

IFC, which is supposed to disburse $22 million (Sh1.6 billion), appears to hold the view that Citadel is in RVR to stay and other shareholders must find a way to accommodate the Egyptian firm. Some $64 million is already available in a facility that has not been drawn on.

IFC and Germany’s state banking group KfW made the loan available at the start of the concession but required some $50 million of equity from RVR.

The IFC was the government’s lead adviser on the concessioning of the Kenya-Uganda Railways and has been trying to play neutral after the two governments appeared to take sides in breaking the impasse with Kenya’s Treasury and Transport ministry officials siding with the highly influential TransCentury Group, while their Ugandan counterparts opted for the Egyptian wealthy investment club.

The London meeting comes as it emerges that the battle for control of the firm is tilting to the advantage of Cidatel Capital after the Egyptian firm announced it is gunning for a larger stake in RVR and that it’s is keen to make an offer to other shareholders.

“We are always looking for an additional stake, even now. If any of the shareholders want to drop out we are more than happy to cover them,” said Mr Sadek in an earlier interview.

TransCentury is worried that Cidatel might force it to sell its 20 per cent holding.

“The Egyptians want to buy all of Sheltam and inject the money and stop the other share holders from participating,” said Mr Ngugi Kiuna, who is TransCentury’s representative on RVR’s board.

“All others have agreed to sell. TCL was approached but we will not sell. We are in this for the long haul,” he added.

The other shareholders of the company are local listed investment firm Centum Ltd with a 10 per cent holding, Tanzania’s Mirambo Holdings (15 per cent), Prime Fuels of Kenya (15 per cent) and Babcock Investments Holdings of Australia (10 per cent).

The battle between the PEs is informed by forecast outsized returns from the railway in an East African market that is expected to rev up the movement of bulk cargo across the region.

But most importantly the fund owners are keen on a firm hold of the region’s logistic corridor to support their planned investments in the region from Uganda to Southern Sudan and Kenya.

The local PE firm with the support of Helios Capital is keen to offer $50 million (Sh3.7 billion) of investment capital to RVR but on condition that it assumes the lead shareholder role, while Citadel has promised to inject $180 million to turn around.

Stagnant revenues

Consultancy firm Deloitte, which handles the firm’s financial records, notes that nothing short of a swift turn around of the firms operations, investment in the rail infrastructure and capital injection by the shareholders will rescue it from collapse.

The battle for control of the rail firm comes as its performance continues to deteriorate on reduced customer numbers.

In 2009, RVR closed the year with a loss of $17.5 million on revenues of $56.1 million, driven by stagnant revenues on reduced customer numbers.

Businesses are frustrated that while rail transport is cheaper than road, most cargo is being hauled on road denying them the edge in a regional market that is becoming increasingly competitive.

But with a revamp of RVR coupled with expected surge in traffic the troubled rail firm could reverse its fortunes.