TransCentury set to invest Sh24 billion in rail system

The cost of transporting goods across Kenya into Uganda could reduce significantly in the next five years following investment firm TransCentury’s plans to inject $300 million (Sh24 billion) into Rift Valley Railways.

The funds, to be disbursed in the next five years, will be spent on modernising the Kenya Uganda railway in which the private equity firm holds a principle interest of 34 per cent.

TransCentury’s chief executive officer Gachao Kiuna said on Monday the funds “Transport infrastructure division is focused on the turn-around of Rift Valley Railways and recapitalisation of the railway line,” said Dr Kiuna.

The money will be raised through debt and shareholder contributions, helping revamp 100 locomotives, 3,500 wagons and the rail truck that stretches from Mombasa to Kampala.

“The target is to get the railway back on track. The initial phase is getting these assets back in place,” he added.

TransCentury has announced plans to sell its shares to the public within the year.

In annual results announced on Monday, the group’s profits after tax doubled to Sh468 million for the period ended December 2010 from Sh234 million the previous year on account of improved business in the specialised engineering and consumer divisions.

Turnover in the specialised engineering and consumer divisions went up 82 and 28 per cent to Sh411 million and Sh915 million respectively.

Its power infrastructure division, which saw its revenues up 23 per cent to Sh5.5 billion though its earnings before interest and tax declined by 50 per cent due to an impairment charge related to East African Cables Tanzania.

Dr Kiuna said that despite the impairment charge aluminium volumes more than doubled while transformer and copper volumes went up 38 and 9 per cent respectively.

“If East African Cables had not taken an impairment charge then earnings would have been much better but we are looking at a better performance this year,” he said.

Dr Kiuna said the company has already signed an “in principle agreement” for debt with banks that will provide approximately Sh12.8 billion ($160 million) while the other Sh11.2 billion ($140 million) will come from shareholder funds.

“We already have $54 million committed and are looking to top up that by $100 million,” he said.

Key banks financing the RVR project include World Bank’s private lending arm IFC, African Development Bank and the German development bank Kfw.

Dr Kiuna hinted that part of the shareholder funds will come from the planned initial public offering (IPO).

Citadel, an Egyptian private equity firm owns 51 per cent of RVR while Bomi Holdings Limited, a Ugandan investment company, holds the remaining 15 per cent stake.

Dr Kiuna said the company was betting on the rail company to grow its transport infrastructure division through injection of new funds, adding that the outlook for power infrastructure, specialised engineering and affiliate holdings divisions “looked positive.”

While cargo volume at the port of Mombasa has shot up to over 19 million tonnes as at the end of last year from seven million tonnes in the 1980’s, volumes transported by RVR have declined from 4.8 million tonnes to 1.5 million tonnes in the same period of time.

TransCentury owns stakes in four cable factories- East African Cables in Kenya and Tanzania, Cableries du Congo in DR Congo and Kweberg Cables in South Africa, which manufacture wires and transmission cables under its power infrastructure division.

The firm also has shareholding in Tanelec Limited, a transformer factory in Tanzania.

TransCentury also distributes and services weigh bridges in Kenya, Uganda and Tanzania through its specialised engineering division.

It also has stakes in Development Bank of Kenya and Chai Bora – a tea company in Tanzania both under the affiliate holdings division.

Dr Kiuna said that the focus on the power division would be to grow power generation, and diversify the product offerings while specialized engineering would see a Sh4 billion spend to boost the division.

“We have already placed orders to rehabilitate and overhaul the locomotives. The wagons are okay and require maintenance…things like new brakes,” he said.

He said that RVR and America Latina Logistica had signed an agreement to help in the revitalization of the rail company and a new management team appointed.

The specialized engineering division’s earnings before interest and tax nearly tripled to Sh65 million in 2010 from Sh22 million in 2009, while the consumer division went up more than four times to Sh114 million from Sh33 million.

TransCentury has appointed Dyer & Blair for lead transaction role in the upcoming IPO, KPMG for Financial consulting, Kaplan & Stratton for legal advise and Quantum Leap for public relations.

The group’s assets went up 29 per cent to Sh11.2 billion last year from Sh8.7 billion in 2009 with total turnover increasing 25 per cent to 6.8 billion in 2010.