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East Africa: Lenders Set New Conditions for Troubled RVR
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The East African (Nairobi)
22 July 2008
Posted to the web 22 July 2008
Nairobi
Two key international financial institutions supporting the Kenya-Uganda Railway concession have said they would not disburse funds to Rift Valley Railways until new conditions are met.
Sources have told The EastAfrican that one of the key sponsors of the concession - the International Finance Corporation - the World Bank's private sector-lending window, has indicated that it will not give RVR any money until RVR concludes ongoing discussions on a new management and financial restructuring.
Another key lender to the concession - KFW of Germany - has also indicated that it will not give any money to RVR until it is satisfies all "conditions precedent" to the agreement, including conclusion of a partial risk guarantee and reimbursement of invoiced fees and expenses of the counsel which the lender retained for the transaction.
RVR is presently holding discussions with two international companies on a rescue plan that includes transfer of management from the current one led by one of the shareholders - the Sheltam Group of South Africa.
The first is a consortium led by Australian company Toll Holdings Ltd, which also includes a UK-based equity fund PME Africa Infrastructure Opportunities Plc (PME).
The second, is a consortium led by Optima Management Ltd of the UK, said to be linked to Magadi Soda.
Faced with financial problems, the board of RVR gave the mandate to one of its shareholders - the Australian company, Bobcock &Brown Ltd - the mandate to invite international operators with the capacity to bring in new equity and management to the company.
It is this process that led to the invitation of two international players - first Toll Holdings Ltd and then Optima Management of the UK.
Included in Toll Holdings is PME Africa Infrastructure Opportunities.
Consequently, the RVR board allowed these two players two consortia to run due diligence on RVR in May.
Written proposals were submitted on May 30 to the RVR board. On June 3, both Toll and Optima gave presentations to RVR's shareholders and lenders.
Sources have told The EastAfrican that the IFC has since expressed its own views about the strengths of the two companies.
It is understood that the World Bank institution has made the point that while it has no doubts about Toll's capabilities, it was concerned that the Australians do not have any experience in Africa.
The IFC has also reportedly argued that the proposal by Toll provides for very little in terms of injection of new funds.
According to the proposal by the Australians, they are to invest only $10 million. IFC is reportedly concerned that Toll merely wants to play the role of a manager of RVR.
Then there is the issue of what the IFC sees as the incestuous relationship between PME and South African group, Sheltham, that is currently managing RVR.
Apparently, IFC believes that PME is a related party to the Sheltham group, implying that RVR was likely to support their bid to take over management as opposed to the Optima consortium.
With regard to the proposal by Optima, IFC is said to have indicated that it was impressed by proposal by the company to come up with a management team that will mix local experience and international rail expertise as well as some partners having a long-established presence in Kenya.
Consequently, IFC has asked the shareholders of RVR to come up with a transparent process of selecting between the Toll Consortium and Optima.
The IFC has recommended the creation of an informal steering committee composed of shareholders, lenders and the governments of Uganda and Kenya to guide the process of choosing between the Australian-led consortium and Optima.
Sheltam Ltd of South Africa is the largest shareholder of RVR, owning 35 per cent of the shares. Others are the Transcentury Group, Prime Fuels and Mirambo Ltd, Centum Investment Company Ltd and Babcock and Brown.
Apparently some of the shareholders have not fully subscribed their equity. Consequently, IFC has recommended that the best option for RVR at the moment is for the shareholders to put in the remaining amounts currently standing at $7 million.
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The calculation is that this amount will be enough to compensate for the disbursement that was expected from KFW.
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