Friends of the Rail Forum

Egyptians eye troubled rail company

Daily Nation Tuesday December 29 2009

The troubled Rift Valley Railways, the consortium contracted to operate the Kenya Uganda Railways for 25 years, could undergo another change in its shareholding.

Egyptian investors are said to be angling for a major stake in the consortium, which won the concession tender in 2006, with a majority stake held by Sheltam Rail Company of South Africa.

The Egyptians, trading as Ambience, are said to have informed the government of their desire to buy out some of the shareholders with an aim of acquiring a controlling 80 per cent stake in the consortium.

"They have already written to the government about their intention," said a source who is familiar with the goings on but who cannot be identified by name because of the sensitive nature of the dealings.

Equity firm

The source claimed the investors are working with Citadel Capital, a private equity firm in the Middle East and North Africa with $8.3 billion in investments under its control.

The concessionaire initially had Sheltam with 86 per cent ownership stake, Comazar (Pty) Limited (10 per cent) and the Institute for Africa Development Trust (four per cent). However, it has run into problems, and failed to meet its obligations.

This has led to questions about its capacity to ably manage the 900km railway connecting the East African region to the Indian Ocean.

Delays by the International Finance Corporation, the World Bank's private lending arm, and Germany's KFW to release a $64 million loan have compounded the problem, leading to threats by governments of Kenya and Uganda threaten to cancel the deal.

A do-or-die battle for control as railway stake enters crucial stage

By JAINDI KISERO
Posted Saturday, January 9 2010 at 21:00
Daily Nation

The campaign by Transcentury Limited to block the entry of wealthy Egyptian investors from gaining a foothold in the shareholding of Rift Valley Railways (RVR) enters the decisive stage on Monday at a crucial meeting convened to discuss the latest controversy in the concession deal.

Transcentury – a private equity firm owned by politically influential local businessmen – is engaged in a do-or-die battle with Citadel Capital of Egypt for control of RVR, the entity that runs and controls the 900-kilometre Kenya-Uganda rail line under a 25-year concession granted to the company by the governments of Uganda and Kenya in 2006.

Apparently, Transcentury had been in negotiations with RVR’s principal shareholder Roy Puffet for his 35 per cent stake in RVR when, in a surprise move, the South African national quietly cancelled the negotiation, choosing instead to offload 49 per cent of the shares in Sheltam Rail Company through which he owns shares in RVR to the Egyptians.

According to available documents, the transaction between Mr Puffet and the Egyptians for the 49 per cent stake in Sheltam was concluded on November 20 last year. It has an option that allows the Egyptians to buy 100 per cent of Sheltam in one year.

Sheltam is the largest shareholder in RVR with a 35 per cent stake followed by Transcentury (20 per cent), Mirambo Holdings of Tanzania (15 per cent), Prime Fuels of Kenya (15), Bacbcock and Brown Investments of South Africa (10) and Centum Ltd (5).

Following the deal between Puffet and the Egyptians, Citadel now has an indirect stake in RVR – technically allowing it to appoint directors to the board.

On January 5 there was drama when two officials of Citadel – managing director Karim Sadek and a top executive, Al Barbary – showed up to attend a board meeting called by the chairman of the company Brown Ondego.

According to insiders, the Egyptians were kicked out of the tense board meeting when a section of the directors raised a technicality – that they had indicated in their credentials that they were alternate directors.

The directors opposing them argued that they needed to have presented themselves as substantive directors appointed by Sheltam – the majority shareholder of RVR.

After heated debate, the Egyptians left the meeting, promising to return after addressing that technicality and arguing that nothing in the laws of Mauritius – under which RVR is incorporated – allows other directors to vet appointment of fellow directors by the shareholders of the company.

Ahead of Monday's meeting, Transcentury for the first time went public in its crusade to block the Egyptian investors from taking control of the railway company.

In a paid newspaper advert on Friday, the company launched frontal attack on the Egyptians, describing them in disparaging terms – that Citadel was “hovering” around seeking entry into RVR – while dismissing the shareholders of RVR who had supported the entry of the Egyptians into the company as an unpatriotic lot bent on “hawking” the concession to the highest bidder.

In its statement, Transcentury played the nationalistic card, making the self-serving case that the government should give preferential treatment to locals in the concession deal.

The statement left no doubt that Transcentury will be going into Monday’s interministerial meeting between Kenya and Uganda hoping that its campaign to keep the Egyptians out of RVR will receive a favourable hearing.

It is a high stakes affair that will test the political clout and influence of the group’s shareholders and directors within the corridors of power to the limit.

The group is made up of powerful and immensely influential figures in both its shareholding register and board which is why the controversy is surrounded by deep political undercurrents.

According to information Transcentury disclosed in a prospectus as it planned a private placement floatation in 2007, the list of top 10 shareholders includes commissioner general of the Kenya Revenue Authority Michael Waweru, KenGen’s managing director Eddy Njoroge, influential businessman Peter Kanyago, respected acquisition artist and investor James Gachui and corporate sector heaveweights Jimna Mbaru, Zaph Gitau Mbugua, Joe Karago and Ndungu Gathinji.

Documents seen by the Sunday Nation show that long before Mr Puffet and the Egyptians started proper negotiations, Treasury permanent secretary Joseph Kinyua fired off a letter to Mr Puffet making the controversial argument that the agreements he had signed with the government prohibit him from selling to the Egyptians.

Mr Kinyua argued in the letter that according to section b(iv) of one of the agreements he had signed – referred to as the interface agreement – Sheltam as the lead investor was required to hold on the shareholding of the RVR throughout the concession term.

That letter was the first to signal Treasury’s predisposition to oppose the Egyptian investors, coming – as it did – long before either Mr Puffet or Citadel had formally informed the government of their intentions to transact the shares of RVR.

Mr Kinyua did not stop at writing to Mr Puffet. He fired off a similar letter to the International Finance Corporation of the World Bank and KFW of Germany, cautioning them against proceeding to give consent to Mr Puffet to sell to the Egyptians without consulting Treasury. Whether the legal position taken by the Treasury is valid is, however, an open question.

The opposite view is that the interface agreement does not say Sheltam’s hands were tied into holding the shares for the whole tenure of the 25-year concession.

Lawyers supporting the Egyptian bid said that contrary to Treasury’s position, Mr Puffet had not signed warranties tying Sheltam’s hand into owning the shares throughout the concession term.

Apparently, this is the interpretation Uganda has adopted. In an interview with the East African, Jim Mugunga of the Uganda Privatisation Unit said: “The shareholders of Sheltam were under no legal obligation to consult us on who to sell shares to”.

He said that as far as Uganda was concerned all the shareholders of RVR were obliged to do was to inform the government that a new firm had come on board.

Kampala has thrown its weight behind the Egyptian investors. Uganda has said that all that they will demand is that a due diligence process be conducted on Citadel.

Egyptians set to join RVR board

By JUSTUS ONDARI
Posted Monday, January 11 2010 at 22:30
Daily Nation

Egyptian investors, Citadel Capital, who have been angling to gain a foothold in the Rift Valley Railways (RVR), were given a lifeline on Monday when the government ordered all RVR shareholders to migrate into a new company.

After a meeting of the Joint Railway Commission, which brings together the governments of Kenya and Uganda, the shareholders were given 14 days to sort out their differences and join the Kenya Uganda Railway Holdings Limited (KURH). The company, owned by the two governments, will have a Ugandan shareholder with a 15 per cent stake.

“All shareholders are expected to join KURH where the proportion of shareholding will depend on their funding,” Dr Cyrus Njiru, commission co-chairman and Kenya’s Transport Permanent Secretary said after the meeting in Nairobi. And there is little room to wriggle out.

“We will not allow anyone to drag us behind because the concession is based on the indulgence of the two governments; all the necessary notices were issued to cancel it,” Dr Njiru said in reference to past plans to cancel the deal after shareholders failed to raise the requisite funds.

This means the shareholders — Sheltam (35 per cent), Transcentury Ltd (20 per cent), Prime Fuels Kenya (15 per cent), Babcock Brown (10 per cent), Centum Investments (10 per cent) and Mirambo Holdings (10 per cent) — have to sign an agreement they were supposed to sign on November 25, 2009, before some declined.

Lead investor

Although the setting up of the new firm was predicated on Transcentury becoming lead investor, it gives the Egyptians, who have acquired a 49 per cent stake in Sheltam Rail Company, room to join the RVR board. They can achieve this by backing Sheltam’s shareholding in KURH.

Sheltam, which is the lead investor in the 25-year concession and holds a 35 per cent stake in RVR, ran into financial and management challenges, leading to the start of the negotiations to change the shareholding structure in 2007.