China firm buys Sh6.4bn stake in Centum’s Two Rivers

An artist’s impression of the Two Rivers mall which is being built in Nairobi. PHOTO | COURTESY
An artist’s impression of the Two Rivers mall which is being built in Nairobi. PHOTO | COURTESY 

Centum Investment’s Two Rivers Development has attracted $155 million (Sh14.3 billion) in new funding, including one of the biggest equity investments in a local company by a Chinese firm.

The listed firm has received the money for the mixed property development in the form of debt and equity.

Centum said that Aviation Industry Corporation of China (Avic) had invested $70 million (Sh6.4 billion) in Two Rivers for a 38.9 per cent stake, valuing the project at about Sh16.6 billion.

State-owned investment firm ICDC, which also has a 23 per cent stake in Centum, made a $5 million (Sh462.5 million) equity investment while Co-operative Bank contributed Sh7.2 billion in debt funding for the project.

“The investment by Avic is particularly noteworthy being one of the largest foreign direct investments in this region by a Chinese corporation into a private enterprise,” Centum said in a statement.

Besides the equity investment, Avic is also the main contractor for the Two Rivers project. The project is being put up on a 102 acre site along Limuru Road and will consist of a mall, a hotel, apartments and office blocks.

South African hotelier City Lodge is putting up a three-star hotel on the property.

The upcoming mall, billed as the largest in East and central Africa with a gross lettable area of 62,000 square metres, is set to open in October with French retailer Carrefour as the anchor tenant.

Centum has, in recent years, raised billions of shillings for the Two Rivers and other projects it has undertaken to diversify from stock market investments.

In February 2013 the company raised Sh4.2 billion by issuing a corporate bond and recently opened talks with institutional investors with the aim of raising as much as Sh8 billion through another bond.

Dyer and Blair Investment Bank and Equity Investment Bank are the joint transaction advisors for the bond. A presentation by Centum says that the firm plans to issue Real Estate Investment Trusts (REITs) for Two Rivers and Pearl Marina, a similar project in Uganda, to allow equity investors exit.

“The characteristics of the asset offer an opportunity to design a REIT around it, in turn creating a long term dollar asset which is highly liquid and desirable for institutional investors,” says the report.

Two Rivers is expected to generate $25 million (Sh2.3 billion) in annual rental income, representing a yield of around 14 per cent in dollar terms.
The firm has a Sh34.5 billion portfolio with real estate accounting for the lion’s share at Sh11.85 billion.

Players in the property sector say that scarcity of land in urban areas, coupled with a growing middle class, is creating a strong market for mixed developments in Kenya.

“Rapid population increases and urbanisation has led to insufficient availability of land in urban areas and has added strain to services and infrastructure,” the Royal Institution of Chartered Surveyors said in a market report.