The Nation (Nairobi)

Kenya: Egyptians Outwit Transcentury in Bid to Control Railways Firm

Nairobi — A bid by leading investment company owned politically influential businessmen to take control of Rift Valley Railways has hit a major snag. Transcentury Ltd has been trying to take over RVR which is running the 900 kilometer Kenya Uganda Railways under 25-year concession.

This is after it emerged that Sheltam of South Africa, the largest shareholder in RVR with a 35 per cent stake, has sold part of its own shares to a wealthy Egyptian equity fund, giving the Egyptians indirect interests in the company and allowing the Cairo-based publicly listed group to appoint directors to the board of the company.

Apparently, Transcentury that currently holds 20 per cent of the company had been negotiating with Sheltam to purchase the same stake as the group sought to acquire controlling interest in RVR.

But Transcentury was to realise that it had been outwitted by the Egyptians two weeks ago after Sheltam's principle shareholder and South African national, Mr Roy Puffet, circulated a memorandum he had sent to the chairman of RVR, Mr Brown Ondego, revealing that he had sold 49 per cent of his company to an entity by the name Ambience Ventures Ltd, which is part of the $ 8.3billion Citadel Capital of Egypt.

Under the new deal, Mr Puffet retains majority control of Sheltam. The memo announcing the entry of the wealthy Egyptian investors into the fray of what is referred to as the most messy privatisation transaction in Kenya's history, was signed and endorsed by all shareholders of RVR except Trancentury, signalling the fact that the rest of the shareholders of RVR, with an 80 per cent stake in the company had ganged up against Trancentury to support the arrival of the Egyptians into RVR.

Until recently, Sheltam held a 35 per cent stake in RVR followed by Trancentury's 20 per cent. The other shareholders of the company are Tanzania's Mirambo Holdings (15%), Prime Fuels of Kenya (15%) Babcock Investments Holdings of Australia (10%) and Centum Kenya Ltd (5%).

The wealthy Egyptians group have pledged to invest $150 million of fresh funds into RVR to offset outstanding concession fees to both the governments of Uganda and Kenya, and to pump money in purchase of new locomotives and rehabilitation of the track.

The new development has sparked intense lobbying in the corridors of power with interests opposed to the transaction between Sheltam and Citadel Capital lobbying the government to veto the deal with the Egyptians- their point being that Egyptians should have sought government approval before consummating with Sheltam.

On the other side, the majority of the shareholders of RVR have maintained that what had changed hands were only shares of Sheltam Ltd and that since the entry of the Egyptians had no bearing on the initial ownership structure of RVR, the government had no say in the matter.

The issue is expected to be top of the agenda when a meeting of a joint interministerial committee in which both Uganda and Kenya is represented assembles in Nairobi on Monday to discus recent goings in the railway concession.

Clearly, the controversy is much more than a mere board room tiff involving disagreements between shareholders. It a high stakes affair with major political undercurrents mainly because of the percieved political clout of individual businessmen behind the Transcentury group.

According to an information disclosed in the prospectus which Transcentury put out as the company floated a private placement share floatation in 2008, among its top ten shareholders include the managing director of Ken Gen, Mr Eddy Njoroge, the Commissioner General of Kenya Revenue Authority, Mr Michael Waweru, and influential businessmen Peter Kanyago, Jimna Mbaru, Zaph Gitau Mbugua and Joe Karago.

With the majority of the shareholders of RVR standing their ground in support of the Egyptians, chances are that the controversy will drag on for along time and in the process delay injection of funds into what has been Kenya's most troubled privatisation transaction.

As things stand, the group that has ganged up against the Trancentury group's interests have decided to treat the matter as a done deal. On Tuesday, and even as the lobbying against the Egyptians was going on, the chairman of the company, Mr Brown Ondego, called a board meeting at which all the directors unanimously resolved re-capitalise the company in an amount of $50 million by January 29.

Four years since the governments of Kenya and Uganda concessioned the shareholders and directors have been involved in endless disputes the consequence of which is that very little money has been invested in the company as stipulated in the concession. RVR owes the two governments millions of shillings in accumulated concession fees. Boardroom wars have been the order of the day.

Early last year, and as it became clear that the Sheltan Group neither had the money nor the expertise to run RVR, a decision was made that Sheltam would quit and that its place would be taken over by a new company to be known as Kenya Uganda Railways(KUR) in which all the remaining shareholders would inject $ 50 million in proportion to the stakes in the company.

International lenders

The assumption was that a capital injection of this order would unlock some $100 million already committed by international lenders sponsoring the concession- the International Finance Corporation of the World Bank(IFC) and KFW of the Netherlands. But getting Sheltam out of the company has proved extremely difficult. Apparently, the concession agreement which the government signed with the South African had granted the South Africans too much power vis-à-vis the interests of the country.

In the first place, the agreement put total control of the board of the company in the hands of Sheltam. Secondly, under the concession documents, Sheltam was granted the elevated position of 'lead investor', guaranteeing the South African company a minimum shareholding of 35 per cent which was not to be diluted throughout the concession.

Thus, even after it was agreed that Sheltam was to step down, the remaining shareholders could not put in any substantial monies in the company as this would dilute Sheltam and breach the 35 per cent minimum rule. As it turned out, the idea of creating a new company dragged on for more than year. No substantial monies were injected into the company.

While it is still early to predict the direction the controversy may take, the government will be hard placed to resist the Egyptians especially if it turns out that they are ready to inject the big money they are flaunting.

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