Early last year, TransCentury
found itself in a financial knot as its Sh8 billion bond (inclusive of
interest and exchange rate impacts) fast-approached maturity.
As
the investment firm negotiated with its bondholders, New York-based
private equity fund Kuramo Capital came to the rescue, making an equity
injection of $20 million (Sh2 billion) in exchange for a 25 per cent
stake.
These funds were wired to the bondholders, who
also took a haircut of a similar amount, leaving TransCentury with a Sh2
billion obligation payable over three years.
The Business Daily talked
Shaka Kariuki, the 48-year-old Kuramo partner and new TransCentury
chairman, on issues surrounding the complex financial transaction, the
entry of Kuramo and its strategy for the NSE-listed firm.
Many people hadn’t heard of you before last year. And now you are the chairman of TransCentury. Who is Shaka Kariuki?
I
was born and raised in Kenya. I moved to the US to do my undergraduate
and post-graduate studies. I stayed there and worked for several
companies.
One of the many companies I worked for was
Deseret Mutual, an endowment fund where I managed about $9 million in
both private and global equity. I have been doing this for over 22
years.
So, who is Kuramo capital and what has it been doing in this country before the TransCentury deal?
Three partners, including myself, started Kuramo Capital six years ago. We have three offices and about 15 employees.
We
run our investment out of Nairobi and Nigeria and operations and
marketing from New York. Our portfolio size is just over $300 million
(Sh30.9 billion).
Our main investments are in
consumer-related products, energy, technology and consumer finance. We
have 21 investments across the continent, mainly in sub-Saharan Africa.
Do you have any other investments in Kenya other than TransCentury?
Our
local exposure is through PE funds. One of Kuramo’s three arms invests
in other funds like Catalyst Fund, Helios and Verod Capital Management.
Some of these funds have investments in Kenya.
And what is your main source of funds?
By
design, we decided not go the DFI route like other PE firms. We get
most of our financing from endowments and foundations. We are purely
commercial-driven.
We have between 10 and 15 limited
partners. The majority of them are from the US, a couple from Europe. In
Africa, we have one in South Africa.
TransCentury has hit a rough patch in recent years. What attracted you to the company?
We
are sector agonistics, not specialists. Kuramo was looking for an
opportunity to an investment and take it to the next level. At
TransCentury, there exists potential in the sectors it is already in and
others like water. The company is still a very strong asset. Their
recent volatility is not a concern for us. We are in for the long haul.
What new sectors should we expect to see TransCentury going into in the medium term?
When
constructing our portfolio, we look at our synergies. TransCentury, for
instance, doesn’t have presence in West Africa but Kuramo has
investments in energy companies in that region.
This
presents an opportunity to add value to everybody involved. Ultimately,
these are board and management decisions which will be disclosed at the
right time.
Kuramo has immense powers on the
board, despite having just three directors. Dont these powers limit the
independence of the board and management?
We
do not want a scenario where we wake up one day and the board has fired
the CEO. We negotiated for the veto power to have that protection. We
made our investment partly based on having a management that can execute
its mandate.
Another way to look at it is that the
CEO and CFO are always assured of our support. As for the reserve
matters, this is not unique to Kuramo.
We need to be
included when making decisions such as divesting from companies or
writing off debts, whatever the case may be. We do not have a bigger
say.
There was a lot of mystery surrounding how
the bond matter was settled last year following a Sh2 billion
injection. One of the outstanding issues was whether the bondholders
took a haircut or not and, if so, how much was it?
At
the end of the day, Kuramo did not have anything to do with the bond.
We were simply investors. But I am aware that the bondholders did take a
50 per cent haircut of about $20 million.
I am not
saying they were willing to take the haircut but at times during
negotiations, the alternative to what is offered may be worse. At the
end of it was a win-win for everybody.
Did
Kuramo’s entry into the scene have anything to do with the exit of a
majority of TransCentury’s founding members from the board?
They
left even before Kuramo came in. I have read articles saying Kuramo
forced them out. This was inaccurate. All organisations go through a
transformation and restructuring and that’s just natural when trying to
figure the best way to run a business.
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