Now Transcentury to chair RVR board in new contract

High-profile Kenyan investment house, Transcentury Ltd has earned a guaranteed position of chair of the board of the newly restructured Rift Valley Railways Investments, under a new deal struck with wealthy Egyptian private equity firm, the Citadel Group.

Rift Valley Railways runs the 1,200-kilometre metre gauge between Mombasa and Kampala under a 25 - year concession. The arrangement is spelt out in a new shareholders agreement with Citadel, which has been seen by The EastAfrican.

Hammered after months of lengthy negotiations, the agreement is largely viewed by insiders as representing a tactical retreat by the wealthy Egyptian equity fund to accommodate the interests of the politically- influential local shareholders of TransCentury.

With the Egyptians having invested millions of dollars in purchasing interests of the minority shareholders in RVR, including South African national Roy Puffet and with both Kenya government and international lenders displaying unwillingness to support the raid of RVR’s shareholding register by the Egyptians, Citadel has now calculated that a prolonged battle in a foreign land was only going to jeopardize its long term interests and desire to control one of the most critical logistics arteries in East Africa.

Under the new agreement, Trans-Century’s interests in RVR will now revert to a new special purpose vehicle by the name, Safari Rail Ltd that will hold 34 per cent of RVR shares.

The Egyptians, with a 51 per cent shareholding will be represented in the company by another special purpose vehicle, Ambience Railway Company Ltd.

But notwithstanding the majority position by the Egyptians in the company, the shareholder agreement specifically stipulates that Safari Rail Ltd shall nominate the chair of the board of RVR from its appointed directors.

Clearly, the Egyptians have been forced by circumstances and a sense of pragmatism to pursue a strategy of peaceful co-existence and cohabitation with TransCentury group.

The activities of the original majority shareholder, South African national Roy Puffet had provoked strong nationalistic sentiments with critical voices accusing the government of sitting back as foreigners forcibly take over a strategic national asset.

As chairman and chief executive of RVR, Puffet had literally brought down RVR to its knees by starving it of new capital injection, sucking cashflow dry by paying his South African-based companies hefty management fees and outright mismanagement.

With the company having fallen into financial doldrums and with Kenya and Ugandan governments threatening to cancel the concession altogether, Mr Puffet’s activities were to stir even more anti-foreigner resentment when it emerged that he had surreptitiously sold his interests in RVR to the wealthy Egyptians without informing neither the government nor to international lenders.

It is against this backdrop that the Egyptian private equity fund decided to change tact. Most intriguing is the extent the Egyptians were prepared to commit resources in executing the buy out of RVR existing shareholders.

First, the Egyptians purchased 45 per cent of the entire share capital of RVR from Prime Fuels Ltd (Kenya). Mirambo Holdings Ltd, Centum Investments Ltd and Babcock & Brown Ltd and then transferred it to their SPV, Ambience Ventures Ltd.

Having secured 35 per cent stake, which originally belonged to Mr Roy Puffet, this brought the total stake by the Egyptians to 80 per cent.

The second stage of the transaction involved transferring 14 per cent of the share capital belonging to Ambience Ventures Ltd to Transcentury bringing the total stake of the local shareholders to 34 per cent.
In the third stage, 15 per cent of the shares owned by Ambience are to be transferred to Ugandan investors.
Although details of the amounts of money spent to secure the new shareholding deal are scarce, insiders estimate that the Egyptians may have spent in excess of $20 million to execute the buyout of the original shareholders of RVR.