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The Daily Star Lebanon: Egypt's Citadel Capital to buy 35 percent of E. Africa railway

Another shareholder in RVR, TransCentury, has complained about the deal and says it will seek legal redress.
27.03.12 | Interesting article at The Daily Star Lebanon

Egypt’s Citadel Capital has a conditional go-ahead to acquire all of South African firm Sheltam Close’s 35 percent stake in an east African railway concession, a director said on Monday.

Citadel has already acquired a 17.5 percent stake in Rift Valley Railways (RVR), which won a 25-year concession to run the Kenyan and Ugandan railways jointly, after buying a 49 percent stake in Sheltam, the operator’s lead investor.

The two have now agreed on Citadel taking 51 percent of Sheltam to give it Sheltam’s full 35 percent stake in RVR, once the agreement has the greenlight from lenders to RVR including the International Finance Corporation (IFC), said managing director at Citadel Capital Karim Sadek.

“It is done, we are not going to renegotiate, [it is] signed … The only reason we are not there yet is that we are waiting for that consent,” he said.

Another shareholder in RVR, TransCentury, has complained about the deal and says it will seek legal redress.

Other partners in the consortium are Mirambo Holdings and Primefuels Ltd, Centum Investment Ltd and Babcock & Brown of Australia.

“We are always looking for an additional stake, even now. If any of the shareholders want to drop out we are more than happy to cover them.”

The shareholders in RVR completed a $10 million cash call at the end of January, Sadek said. A second $10 million will be raised by the end of March.

The money raised in January will mostly go toward paying overdue concession fees but the second tranche of cash will partly be used for track renovation work and new engines, he said.

The $20 million is part of the $50 million the company needs to raise in a restructuring process to get trains moving.

Kenya demanded last year that the concession deal be renegotiated to change the shareholding and leadership structure in order to inject fresh capital into the line’s operations.

Sadek said that most of the shareholders were in agreement on a new structure whereby RVR is the lead investor in a yet-to-be-formed Kenya Uganda Railway Holdings that will own the concession.

Once the restructuring deal is signed the shareholders will be required to raise $50 million within 15 months. They would have $20 million of it by the end March, Sadek said.

According to Citadel Capital’s figures, the line needs $150 million of investment to have an efficient and reliable service.

“They don’t have to go spending loads on marketing, [nor] cut prices because there is so much cargo in Mombasa that even … operating on [modern] standards will not be able to carry,” he said. “We are not talking about billions,” he added.

Some $54 million is already available in a facility that has not been drawn on. IFC and Germany’s state banking group KfW made the loan available at the start of the concession but required some $50 million of equity from RVR.

Sadek said his firm hopes that by the first quarter of next year the service between Mombasa and Nairobi will be fully recovered and that by the end of 2011 the entire route to Kampala will be back in full operation.

Businesses are frustrated that while rail transport is cheaper than road, most cargo has to be trucked overland through Kenya, where corruption and poor roads delay deliveries.

“It is a shame what has happened to this firm,” Sadek said.

“This is a railway that does not have to fight to get a market share. All it needs to do is to run a train without derailing. Not too much to ask. So I understand completely the frustrations … especially Uganda’s.”

Plans by Kenya to build a new standard gauge railway will not pose much competition as it would cost a $4 billion compared with the $150 million RVR needs to get its operations off the ground, Sadek said.