RVR row headed for arbitration in London

The battle for control of Rift Valley Railway heads to London where the warring shareholders have been invited by the International Finance Corporation (IFC) to help broker a truce.

Egyptian private equity firm, Cidatel Capital, has in the past four months been battling with local private equity shop TransCentury for a position of anchor shareholder in the rail firm.

Citadel has already acquired a 17.5 per cent stake in Rift Valley Railways (RVR), which won a 25-year concession to run the Kenyan and Ugandan railways jointly, after buying a 49 per cent stake in Sheltam, the operator’s lead investor.

The Egyptian has started the process to assume a controlling stake in the firm by acquiring the remaining 51 per cent stake from Sheltam, but TransCentury, which has a 20 per cent stake in the firm, has opposed the deal, saying it will seek legal redress.

Equity firms

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.

IFC has scheduled a meeting for March 19 in London in an attempt to work out a formula that will accommodate the twin private equity firms in RVR.

The London meeting is the result of talks held last week between IFC’s transaction adviser Ravinder Bugga, the two governments and shareholders of the rail firm in Nairobi and Kampala, said a source close to the two private equity firms

“Mr Bugga was in town and had consultations with both Kenyan and Ugandan officials. IFC’s view is that Citadel is in RVR to stay and they need to be accommodated,” said the source.

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.

IFC— which shares part of the blame for the mess in which the concession finds itself in — appears keen to protect its interests after providing a Sh750 million loan ($10 million).

The 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 has set in motion plans to hold a 51 per cent stake with the possibility of buying off other shareholders.

Mr Karim Sadek, the managing director at Citadel Capital, said that the PE firm has signed a deal to buy the remaining 51 per cent stake in Sheltam, arguing that it’s only waiting for the consent of RVR lenders including the IFC.

Additional stake

“It is done, we are not going to renegotiate, (it is) signed, sealed, finished. The only reason we are not there yet is that we are waiting for that consent,” Mr Sadek told Reuters on Monday.

“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,” he added.

The other shareholders of RVR 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).

TransCentury say that most of these shareholders will be willing to sell their shares with Cidatel emerging the likely buyers.

Transcentury reckons that the move by the Egyptian is part of a plan to acquire 100 per cent shareholding in RVR.

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

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.

Fresh financing

Citadel Capital has committed $ 150 million (Sh11.2 billion) over the next five years to RVR.

Three years since the granting of the concession, RVR’s performance has failed to live up to the expectation of both Kenya and Uganda governments on what is attributed to the lack of financial and technical muscle on the side of the lead investor—Mr Roy Puffet of Sheltam.

It has also been unable to access fresh financing from lenders unable to access fresh financing from lenders due to the endless boardroom and shareholder wars.

RVR requires about Sh15 billion over the next five years to revamp its fleet and repair the deteriorating rail network.