Egyptian majority shareholder wrote off $180m stake to exit the railway business.
The move by Qalaa Holdings, the majority shareholder at Rift Valley Railways (RVR), to write off its investment in the Kenya Uganda Railways seems to have sealed the fate of its lenders like African Development Bank (AfDB), Equity Bank and Barclays, who could also now be forced to forgo more than $234.2 million they had advanced the railway operator in 2011.
This comes barely seven months after these lenders issued a notice of potential default, citing RVR’s deteriorating operational performance.
Qalaa, which was majority shareholder in RVR, through the Kenya Uganda Railway Holding, said it was writing off its close to $180 million stake in its East Africa railway operations and will also be exiting the railway business altogether, putting the lenders on the path of writing off their loans.
“Consequently, Citadel Capital, recognised an impairment with the entire carrying value of the assets related to Kenya Uganda Railway Holding (KURH) with an impairment of $178.2 million in its consolidated financial information for the period ended September 2017,” the multinational said.
However, it is the railway firm’s loans and liabilities collection which is now in doubt after Kenya late last year said it would not pick any of them since it was not party to them.
Qalaa has liabilities totaling $290.3 million, of which $3.86 million is in overdrafts, $234.3 million in loans while the rest is owed to suppliers. For the period ended September 2016, RVR made $23.66 million in revenues but its operating costs led to a loss of $29.61 million.
As at December 2016, the firm says it overpaid tax to the Kenyan and Ugandan governments of $10.6 million, which it was expecting to be refunded.
Qalaa’s says it could not obtain financial and accounting information for KURH as of September, which saw its external auditor KPMG declare a qualified opinion on its accounts.
Ten of the 12 loans RVR owed lenders started maturing last year and it is understood that the firm has not made any repayments. An internal audit report showed that RVR was supposed to pay the first principal of $7.71 million in January to the IFC, AfDB, Equity, Barclays, Dutch Development Bank (FMO), the German Development agency (KfW) and Standard Bank but defaulted.
It also failed to remit the interest charge of $6.7 million on the loans to these banks. These loans’ maturity stretched between four to ten years starting January last year. Only its $1.9 million loan to HSBC is not due yet as its maturity date is 2020.
Kenya’s Treasury Cabinet Secretary Henry Rotich ruled out any government commitment to pay off the debts terming them commercial contracts between the railway firm and the lenders.
“These were commercial loans advanced after the lenders profiled the firm for risk. We did not guarantee any of them so we cannot be held liable now that the concession was terminated and operations reverted to government,” Mr Rotich said.
“RVR lenders cannot claim from the government because the agreements with RVR were private without any government guarantees. We have not received any claims and, if they do, we will challenge them because they did not involve any of the concessioned assets,” Kenya Railways managing director Atanas Maina said.
The Citadel Capital financial statement as at September last year, shows that AfDB is still the largest lender to RVR, owed more than $43.14 million for its loan whose maturity lay between last year and 2021.
The loan attracted an interest rate of US libor plus 6.25 per cent and has so far grown by $3.1 million from the initial $40 million advanced in 2011 to the firm for rehabilitating and operating the railway. To date, no repayment has been made towards this loan on the principal or interest.