Citadel stalks 'Lunatic Express' stake

[John Ashworth]

Citadel stalks 'Lunatic Express' stake

By Martin Arnold in London and Barney Jopson in Nairobi

23 February 2010
Copyright 2010 The Financial Times Ltd. All rights reserved.

Citadel Capital, the Egypt-listed private equity group, has unveiled plans to become the biggest shareholder in Rift Valley Railways, operator of the "Lunatic Express" train line running from Mombasa to Kampala.

Citadel says its investment in the century-old Kenyan and Ugandan railway is part of a much-needed modernisation to open up trade across east Africa, but the move still faces opposition from other shareholders.

The 1,200 mile railway was dubbed the "Lunatic Express" due to the lives and money lost during its construction by the British government in the scramble for Africa in the late 19th and early 20th centuries.

Its construction became the stuff of legend . Man-eating lions in the Tsavo plains preyed on railway workers and even dragged a British policeman to his death through the window of his carriage, which is still on display in Nairobi.

Kenya and Uganda awarded a 25-year concession to operate the line to Rift Valley Railways in 2006. But they have been disappointed by its lack of investment and failure to improve efficiency.

Aly Khan Satchu, a financial analyst based in Nairobi, said: "It's a prime asset that has underperformed terribly. It runs through a region of over 200m potential consumers and could be the centre of a network knitting all these fragmented east African markets into a whole."

Citadel yesterday said it had bought 49 per cent of Sheltam Railways, a South African company that is the biggest shareholder in Rift Valley Railways with 35 per cent. No price was disclosed. The Cairo-listed private equity group said it aimed to buy 100 per cent of Sheltam.

This would trigger a change of control clause that requires approval of the World Bank's International Finance Corporation, the biggest lender to the rail operator. Transcentury, the rail operator's second-largest shareholder with 20 per cent, has been lobbying the Kenyan government and the IFC to block Citadel from taking it over.

"If other shareholders are unwilling to support future capital increases then we will step in and replace them," Ahmed Heikal, chairman of Citadel, told the Financial Times.

Mr Heikal said the shareholders had agreed to inject $10m of a planned $150m investment over five years to increase capacity from 2m tonnes to 15m tonnes.