Troubled RVR still attractive to investors, gets new shareholder

Tuesday April 04 2017

A pan-African private equity firm will be the new principal shareholder of the troubled Rift Valley Railways.

The EastAfrican can report that Washington-based Emerging Capital Partners (ECP), which says it invests in companies that operate in business environments characterised by limited competition, has reached an agreement with Cairo-based Qalaa Holdings to acquire the latter’s 73.76 per cent stake in RVR.

This is the fifth time that RVR, the concession operator of the Kenya-Uganda railway line, is changing hands in a period of 12 years. The concession has a lifespan of 25 years.

ECP edged out other international companies that Qalaa has been in negotiations with regarding disposal of its stake in RVR after the concession became a liability.

Other companies that were interested were project management firm Armstrong & Duncan, petroleum distributor Rubix Energy, logistics firm Shreeji Enterprises and state-owned South African railway firm Transnet Engineering.

ECP, which has raised over $2 billion for investments, is not new in Kenya.


It is in the process of raking in a whopping $100 million from the sale of Kenyan coffee chain Java House after controlling the business for only five years.

The PE firm acquired a 90 per cent stake in Java House in 2012 and is currently in talks with two American firms interested in buying it out.

The firm will make impressive profits from the deal having reportedly paid between $25 million and $60 million for the business.

ECP also has interests in Wananchi Group, the media and telecommunications company specialising in pay television, satellite and Internet services.

According to multiple sources, ECP has already agreed in principle to acquire RVR and has contracted audit and advisory firm KPMG to carry out due diligence on the firm, a process that has been ongoing over the past few weeks.

“I can confirm that KPMG acting on behalf of ECP has completed all the legal processes and what is remaining is due diligence on operational and financial aspects of RVR,” said a source.

RVR chief executive officer Isaiah Okoth told The EastAfrican that ECP is on the ground carrying out due diligence on RVR.

“EPC is in various stages of doing the due diligence and I am providing them with the necessary support and information to help them achieve their objectives,” he said.

Although he refused to confirm that ECP has struck an acquisition deal with Qalaa Holdings, experts contend that ECP cannot undertake a due diligence on RVR without the owners’ direct approval.

“I have left the takeover negotiations to the shareholders. My focus is on operations. For me, the key thing is to keep the company running,” said Mr Okoth.
ECP managing director in Nairobi Bryce Fort declined to talk to The EastAfrican, with the communications office stating he is unable to comment. “Bryce is unable to comment on the RVR deal,” said the press office.

An e-mail sent to Qalaa Holdings had also not been replied to by the time of going to press.

In early January, Qalaa Holdings confirmed negotiations with several prospective local and international investors for the sale of its stake in RVR.

“The decision to divest from RVR comes in the wake of management’s conclusion that additional capital is required to complete the company’s transformation programme,” said the company.

While the players involved in actualising the deal remain tight-lipped, mergers and acquisition experts contend that RVR could be worth in the range of $300 million and despite the troubles the company has been experiencing it remains a viable business, particularly for PEs.

“PEs are like sharks. They pounce on a viable business with the knowledge they will exit at some point,” said Philip Muema, Nexus Business Advisory managing partner.

He added that going by the amount that Qalaa Holdings, which was then Citadel Capital, paid Transcentury and Centum in 2014 to become the largest shareholder in RVR, the value of the company could be anything between $250 million and $300 million.

TransCentury sold its 34 per cent stake in RVR to Qalaa for $43.7 million and Centum sold its 10 per cent stake in 2010 for $4.5 million.