TransCentury sells stake in Rift Valley Railways for Sh5bn

Investment firm TransCentury has sold its 34 per cent stake in Rift Valley Railways (RVR) in a deal estimated to be worth Sh5 billion, ending its seven-year investment in the business that has proved a difficult strategic fit.

The sale to Citadel raises the Egyptian firm’s stake in the railway concession to 85 per cent, leaving Uganda’s Bomi Holdings as the only other investor in the railway operator with a 15 per cent stake.

“TransCentury was suspended for the day having announced that it had sold its 34 per cent stake in the rail business to Citadel. No price was disclosed but the stake was valued at Sh3.8 billion in 2012, suggesting a potential transaction value of between Sh4 billion and Sh6 billion, with an estimated internal rate of return of at least 25 per cent,” Standard Investment Bank analysts said in their initial assessment of the deal.

TransCentury’s said it had made the decision to maximise shareholder value and that it remained positive about the fundamentals of RVR despite the historic challenges the business has faced.

“We are actively exploring other possible ways to work together with Citadel Capital to support RVR and maximise value for all stakeholders,” said TransCentury chief executive Gachao Kiuna in a statement.

TranCentury’s sale of its stake in RVR comes at a time when the rail operator is just beginning to become profitable after years of slow and painful resuscitation through heavy investment.

People familiar with TransCentury’s strategy said the investment firm was liquidating its investments in many business lines to concentrate on the emerging mining and energy sectors.

READ: TransCentury eyes oil projects with Sh1bn deal

RVR was awarded a 25-year concession to operate the 2,350 kilometre line from the Port of Mombasa to Uganda in 2005 but frequent changes in the shareholders’ roll has made it difficult to turn around the company’s fortunes.

TransCentury, a Kenyan investment firm that broke into the big deals world during the Kibaki administration, had been initially forced into a marriage with Egypt’s Citadel, arguing that a strategic asset such as East Africa’s only railway line could not be left in the hands of foreigners.  

The exit now leaves TransCentury’s investments in the power and infrastructure sectors in the hope that the two could turn in more revenues than the transport division.

Eric Musau, a research analyst at Standard Investment Bank, said TransCentury may prefer to use proceeds of the sale to stabilise and expand its presence in the more bullish power, oil and gas sectors.

There is also the possibility that Citadel may have placed before TransCentury an offer that was too good to turn down, he added.

“It [the offer] could have been at a good price for the shareholders or they have alternative opportunities,” he said.

Mr Musau said it was important to keep an eye on TransCentury’s next move, suggesting that the Kenyan investment firm may be moving to place all its energy businesses under one roof.

TransCentury recently made a share swap with Aureos East Africa that saw it gain full ownership of Cable Holdings — the company that has a 68.83 per cent shareholding in East African Cables.

TransCentury has mainly maintained a presence in the energy sector through Civicon, a subsidiary in which it has a 60 per cent stake.

More recently, Civicon has been active in the oil and gas sector where it is servicing firms such as Tullow Oil through construction of access roads, landing pads and other infrastructure.

Exiting RVR marks another metamorphosis of the investment company that started as an informal investment group or chama in 1997, before maturing into a fully-fledged investment firm with interests in key economic sectors and outside the country.

Citadel has undergone a similar evolution, becoming an investment firm with a long-term view as opposed to the private equity firm that invests for a limited period.

The Egyptian firm has traditionally concentrated its interests in energy, mining, cement, transport and agribusiness sectors with the Kenya-Uganda railway concession as one of its flagship investments.

Last month, Citadel’s shareholders pumped more money into the company, raising its capital base to 8 billion Egyptian pounds (Sh99.3 billion) from 4.36 billion Egyptian pounds (Sh54 billion).

The capital injection was meant to give the investment company enough funds to increase its presence in subsidiaries, including RVR.

March also saw the investment firm sell its stake in Sudanese Egyptian Bank for an undisclosed amount.

“Non-core investments are being divested at appropriate times and valuations done over the coming three-plus years,” Citadel said at the time.

At RVR, the Egyptian company has announced plans to add one locomotive and 50 wagons every month in the next two years working with a $300 million (Sh26 billion) budget. 

The investment firm expects that improving speed and capacity will increase RVR’s share of cargo landing at the port of Mombasa and grow its profits.

“Investment in rails and sleepers will permit speeds of 70 km/h against 25-30 km/h limits today. Overhaul of locomotives and non-functional rolling stock, along with operational improvements, will help RVR grow its share of Mombasa Port shipping to 12 per cent in 2015 from 7 per cent today,” Citadel said in an investor briefing dated March 2014.

Dr Kiuna had told the Business Daily in an earlier interview that RVR was looking for additional cargo growth from the nascent oil industry.

RVR rehabilitated the Tororo-Pakwach section of its network, taking it within 10 kilometres of the place where UK’s Tullow Oil struck oil in the North West of Uganda.

“The heavy equipment and materials needed for developing the fields would be best transported by rail,” the company said.

Citadel entered RVR in 2010 after outbidding Helios, the same year that saw Centum, an investment company that is also listed on the Nairobi Securities Exchange, exit the rail business.