Kenya rail set for major changes

March 8, 2010
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, NAIROBI, Kenya, Mar 8 – Citadel Capital, the Egyptian private equity firm has said it plans to overhaul the Kenya Uganda railway line and have it operating efficiently in the next two years.

Managing Director of Africa and Middle East Karim Sadek told Capital Business that they plan to start rehabilitating the 2,350 kilometre line in sections with the Nairobi-Mombasa track getting priority.

“It has to start from the source. The first section of improvement would probably be Nairobi and we are hoping to have that done in a few months but it will be a function of our negotiations with our lenders on when to release the loan. My guess is maybe late 2010 or early 2011,” he said.

Citadel Capital confirmed its acquisition of a 49 percent shareholding in Sheltam Railways Company, which is the largest shareholder at the Rift Valley Railways late last month in a move that saw it indirectly have a 17.5 percent interest in the concessionaire.

At the time, the MD hinted that they were looking at acquiring the remaining stake at Sheltam but that now is almost a done deal. Mr Sadek explained that they are only awaiting the nod from the International Finance Corporation (IFC) so that they can assume the 100 percent control of Sheltam.

“We signed a two-tier agreement with the first part being that we have acquired 49 percent (at Sheltam) which is done and we have a conditional sale and purchase agreement with (Roy) Puffet of Sheltam for our acquisition of the remaining 51 percent. It is conditional because that is what is stipulated in the shareholder agreement of RVR and in the loan agreement with the IFC,” he explained.

He added that they had already sought the approvals from the IFC and were hoping to hear from them soon.

“We are not going to negotiate again on the 51 percent nor do a new contract. It’s one document with two parts.  One is 49 percent, the other one is effective once the two conditions are met,” he emphasised.

Citadel will become the largest shareholder with three representatives to the RVR board up from the current two.

IFC, the private sector arm of the World Bank which has been involved in this project in several areas, has been leading the project financing although it has been accused of delaying funding for the revitalisation of the rail line.

The private firm has indicated its intention to inject $150million (Sh11.5b) into RVR to turn around the company. This money is expected to be generated from one third equity, one third debt and the remainder from internally generated profits.

Mr Sadek was optimistic that once the railway line was fully operational, they would break even after two years.

He added that Citadel Capital plans to ensure that RVR is well funded which would enable them to achieve their goal of having an efficient rail network for East Africa and at the same time ensure a good return on investment for their shareholders.

“We are going to work closely with the shareholders and with the lenders to start unlocking the loans which are sitting there and have not been used alongside other subsequent capital injection,” he added.
 
At the same time, Mr Sadek downplayed boardroom wrangles that have plagued the concessionaire since it was formed in 2006 saying it was not their plan to own 100 percent at RVR.

“Our intention is to make sure that we have enough leverage inside the company to make sure that the story of the last few years is not repeated meaning that when the company needs funds, there’s a capital called on and the funds come in,” he said adding that they had consulted all the shareholders who had agreed to work together to ensure the success of the firm.

Currently, Trans-Century has a 20 percent shareholding in RVR while Prime Fuels of Kenya holds a 15 percent stake. Centum Investments Kenya, Tanzanian Mirambo Holdings and Australia’s Babcock and Brown each own a 10 percent share.

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