Ex-State House man Murage leads Sh13bn bid to buy RVR
Mr Stanley Murage (left) and Qalaa head of transportation Karim Sadek. PHOTOS | FILE
What you need to know:
Project management firm Armstrong & Duncan, which is chaired by Mr Murage, is one of the four companies making up the consortium that has taken the pole position in the race to acquire the stake.
Former State House operative Stanley Murage is leading a consortium of investors who are negotiating to acquire an 80 per cent stake in troubled Rift Valley Railways (RVR) for Sh13.3 billion.
The stake, which is currently held by Cairo-based Qalaa Holding, has been on sale since mid-last year when prospective buyers were invited to place bids.
It was not immediately clear why Qalaa, which is exiting to cut the multi-billion-shilling losses it has incurred since investing in the railway operator in 2010, is not selling its entire stake in in the Kenya-Uganda railway concession.
Project management firm Armstrong & Duncan, which is chaired by Mr Murage, is one of the four companies making up the consortium that has taken the pole position in the race to acquire the stake.
Others are petroleum distributor Rubix Energy, logistics firm Shreeji Enterprises and South Africa state-owned railway firm Transnet Engineering, which had not confirmed its participation by end of last week.
The consortium is betting on a multipronged strategy to turn around the loss-making RVR, including funnelling their existing customers to use the railway operator’s services as well as expectation that some of the crude oil coming from the region’s wells will come through.
Transaction documents show that nearly all the cash generated from the deal are earmarked for reinvestment in RVR, signalling that the railway operator is in such dire straits that Qalaa does not hope to make any profit from it but is content with transferring the risk to another operator.
“We are aware that RVR is in dire need for funding which would allow it to survive long enough for us to complete our process,” Michael Mayieka, the CEO of Rubix, said in a letter to the head of Qalaa’s transportation division, Karim Sadek, on November 14, 2016.
“With that in mind we would propose … to meet with the RVR management in order to reach a quick arrangement to prefund through a combination of cash and cargo, the cash shortfalls in the coming 3-4 months,” Mr Mayieka added in the letter seen by the Business Daily.
That offer was to allow completion of due diligence, discussions with stakeholders and documentation.
It remains to be seen whether Qalaa which has given up on RVR, classifying the company as a discontinued operation and with a Sh2.8 billion liability on its balance sheet, will accept the offer.
“Qalaa will nevertheless continue to provide operational and managerial support to Rift Valley Railways, all while pushing ahead with the railway’s three-point turnaround strategy,” the Egyptian multinational said in a November trading update.
The governments of Kenya and Uganda are also expected to have a say in the proposed transaction with an emphasis on compliance with the terms set out in the concession agreement.
The 15 per cent stake in RVR held by Uganda’s Bomi Holdings is not for sale.
The consortium has offered to provide an initial $50 million (Sh5.1 billion), with capital expenditure and maintenance to take up Sh1.7 billion, financing legal liabilities (Sh1.6 billion), plugging operational cash flow deficits (Sh1.2 billion) and urgent operational continuity (Sh512 million).
Some Sh4 billion has been offered to purchase rolling stock like wagons for use in expanding RVR’s operational capacity to handle more cargo destined for all countries in the East African region.
Another Sh4 billion has been set aside for investment in the business over the remaining years of the concession, which runs until 2031.
“The above consideration would entitle the consortium to an 80 per cent majority stake in RVR,” Mr Mayieka said in the letter to Qalaa adding that the new owners planned to negotiate RVR’s debt with the lenders once its assessment of the company’s financial health is complete.
“With regard to your debt from financial institutions, once due diligence is complete, we intend to enter into discussions with them on how to restructure the outstanding amounts.”
The consortium noted that RVR has defaulted on some of its loans, and some of the lenders are opposed to a restructuring of the debt. The railway operator has also breached a number of items in the concession agreement, including defaulting on fees payable to the governments of Kenya and Uganda.
Shreeji’s directors are Dhaval Soni, Gaurang Soni and Naresh Ranpura, who are Kenyan citizens, while Rubix’s executive directors are Steven Mayieka and Michael Mayieka.
Steven Mayieka is also an associate partner at Armstrong & Duncan, which has partnered with Rubix to build auxiliary infrastructure such as depots around RVR’s lines to support bulk transport of petroleum products.
“As is evident from the biographies and the identities of the consortium members they offer a comprehensive solution for RVR... not to mention the financial capability to achieve a quick closing to this,” the Rubix CEO said.
While Armstrong & Duncan, Rubix and Shreeji bring local knowledge and value-adding propositions, including rallying dealers in bulk commodities to use RVR, it is Transnet Engineering which has operational and technical capabilities to run the operation whose presence is key to the success of RVR as a going concern.
A unit of Transnet, which operates South Africa’s pipelines, ports and freight rail, it focuses on manufacture and maintenance of wagons, locomotives, wheels and other equipment.
