TransCentury sells stake in Rift Valley Railways for Sh5bn

Money Markets

An RVR locomotive at the Kampala station. Uganda’s Bomi Holdings remains the only other investor in the railway operator with a 15 per cent stake after TransCentury sold its stake to Citadel. Photo/FILE 

By John Gachiri, jgachiri@ke.nationmedia.com

In Summary

• The sale to Citadel raises the Egyptian firm’s stake in the railway concession to 85 per cent, leaving Uganda’s Bomi Holdings as the only other investor in the railway operator with a 15 per cent stake.
• TransCentury is said to have nearly doubled its investment in the rail concession in a span of seven years.

 

Investment firm TransCentury has sold its 34 per cent stake in Rift Valley Railways (RVR) in a deal estimated to be worth Sh5 billion, ending its seven-year investment in the business that has proved a difficult strategic fit.

The sale to Citadel raises the Egyptian firm’s stake in the railway concession to 85 per cent, leaving Uganda’s Bomi Holdings as the only other investor in the railway operator with a 15 per cent stake.

“TransCentury was suspended for the day having announced that it had sold its 34 per cent stake in the rail business to Citadel. No price was disclosed but the stake was valued at Sh3.8 billion in 2012, suggesting a potential transaction value of between Sh4 billion and Sh6 billion, with an estimated internal rate of return of at least 25 per cent,” Standard Investment Bank analysts said in their initial assessment of the deal.

TransCentury’s said it had made the decision to maximise shareholder value and that it remained positive about the fundamentals of RVR despite the historic challenges the business has faced.

“We are actively exploring other possible ways to work together with Citadel Capital to support RVR and maximise value for all stakeholders,” said TransCentury chief executive Gachao Kiuna in a statement.

TranCentury’s sale of its stake in RVR comes at a time when the rail operator is just beginning to become profitable after years of slow and painful resuscitation through heavy investment.

People familiar with TransCentury’s strategy said the investment firm was liquidating its investments in many business lines to concentrate on the emerging mining and energy sectors.

READ: TransCentury eyes oil projects with Sh1bn deal

RVR was awarded a 25-year concession to operate the 2,350 kilometre line from the Port of Mombasa to Uganda in 2005 but frequent changes in the shareholders’ roll has made it difficult to turn around the company’s fortunes.

TransCentury, a Kenyan investment firm that broke into the big deals world during the Kibaki administration, had been initially forced into a marriage with Egypt’s Citadel, arguing that a strategic asset such as East Africa’s only railway line could not be left in the hands of foreigners.  

The exit now leaves TransCentury’s investments in the power and infrastructure sectors in the hope that the two could turn in more revenues than the transport division.

Eric Musau, a research analyst at Standard Investment Bank, said TransCentury may prefer to use proceeds of the sale to stabilise and expand its presence in the more bullish power, oil and gas sectors.

There is also the possibility that Citadel may have placed before TransCentury an offer that was too good to turn down, he added.

“It [the offer] could have been at a good price for the shareholders or they have alternative opportunities,” he said.

Mr Musau said it was important to keep an eye on TransCentury’s next move, suggesting that the Kenyan investment firm may be moving to place all its energy businesses under one roof.