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The East African : Apr 15th 2017
MERGER AND ACQUISITION 8 NEWS The EastAfrican APRIL 15-21,2017 Blow to Rift Valley Railways as investor pulls out of ‘takeover talks’ Eme≥ging Capital Pa≥tne≥s disowns talks on buying majo≥ity stake By NJIRAINI MUCHIRA Special Correspondent Railway concession has claimed its first casualty, with a private equity firm pulling out of a deal to acquire the operator Rift Valley Railways from Qalaa Holdings of Egypt. The decision by Emerging U Capital Partners to disown talks that had been confirmed as ongoing by, among others, the Kenyan regulator of the line got a quick response from RVR, which said it would seek answers from its shareholders (Qalaa) on what was going on. “ECP is not currently in discus- sions with Rift Valley Railways (RVR) or its principal stakeholders about an investment in RVR,” said the firm in a statement. The ECP statement came al- most a fortnight after it was reported to have commissioned an audit firm to carry out due diligence on RVR’s financial position. It also came a week after it emerged that Kenya had terminated the RVR contract over nonpayment of fees. Due diligence, the perusing of books to confirm accuracy with third party records like asset registries and bank accounts, usually follows an agreement in principle of interest in acquiring a company. It is done on a strictly confidential basis. When contacted by The East- African, RVR chief executive officer Isaiah Okoth said he was CONCESSION A Rift Valley Railways locomotive. Picture: File awaiting communication from Qalaa Holdings on the new developments. “ECP has been negotiating with shareholders and I am waiting for official communication to know the status of the negotiations,” Mr Okoth said. Later, RVR issued a statement signed by Mr Okoth which just fell short of questioning ECP’s integrity. “RVR has been in discussion with several potential investors, including ECP, through its shareholders. As far as RVR is concerned ECP has been involved in due diligence of RVR business,” reads the statement signed by Mr Okoth. Barely a week after Kenya Rail- ways Corporation terminated the Rift Valley Railway concession, ECP has walked out on plans to acquire the majority shareholding in RVR. ECP, which had reached an agreement with Cairo-based Qalaa Holdings to acquire its 73.76 per cent stake in RVR, has opted out of the deal following the termination of the 25-year concession. It added that it will continue ECP is not currently in discussions with Rift Valley Railways or its principal stakeholders about an investment in RVR.” ECP to explore opportunities to invest capital to support the growth of East Africa’s infrastructure sector. RVR also said it was pursu- ing other options in consultation with the Kenyan and Ugandan regulators “with a view to achieving the best possible outcome for all stakeholders in this regard.” The decision by ECP to opt out of the deal at the eleventh hour makes RVR’s position even more problematic, considering it was mainly banking on the coming on board of the new investors not only to salvage the concession but Uganda has differed with Kenya over the decision to terminate the management of their joint railway by Qalaa Holdings of Egypt, saying there are better alternatives to addressing the dispute on concession fee arrears. Uganda Railways Corporation managing director Charles Kateba said the Rift Valley Railways concession “still stands” because “there are other options,” though URC had “no clear decision at the moment.” also to inject capital into the business to ease its survival. According to observers, ECP must have decided to opt out of the RVR acquisition after the company lost the main asset, which is the concession and which still had another 13 years before it expires. “The concession agreement is the main asset for RVR. It is the main value for investors,” said Philip Muema, Nexus Business Did Zuma ta≥get Go≥dhan in midnight ≥eshu±e? By PETER DUBE Special Correspondent IN THE WAKE of South African President Jacob Zuma’s recent midnight Cabinet reshuffle, four axed ministers from the African National Congress have resigned. Former public service minister Ngoako Ram- atlhodi is the latest to resign. He joins Dipuo Peters, who was transport minister, Tina Joemat-Pettersson, who served as energy minister, and Mcebisi Jonas, the ex-deputy minister for finance, who all resigned last week. Political analysts say the reshuffle target- ed Pravin Gordhan, former finance minister. Many had anticipated that Mr Gordhan would give up his party seat. His relationship with President Zuma, a man with whom he shares a birthday, is a broken one. The two celebrated their birthdays one Wednesday. A few days ago, Mr Gordhan vowed not to resign before this month’s debate on a motion of no confidence in President Zuma. “Not yet. See you on the 18th (April),” he said implying that he will be in parliament on the day of a no-confidence vote in Mr Zuma. Application in court However, the Speaker of parliament Baleka Mbete postponed the motion pending the conclusion of the Constitutional Court application by the United Democratic Movement (UDM). Earlier last week, UDM approached the Con- stitutional Court with a request that a secret ballot be allowed on the motion, saying this would allow ruling ANC legislators to vote without fear of retribution from their party. But, just what is the reason that Mr Gord- han’s relationship with President Zuma is considered irretrievable? His snub of two Treasury guarantees — one for a $72 billion nuclear project and one for a $360 million South African Airways loan — could be at the heart of his tiff with the president. Mr Gordhan and his predecessor, Nhlanhla Nene, were reluctant to sign off on any nuclear agreements with Russia. According to the civil society group Organi- sation Undoing Tax Abuse, the nuclear programme would end up costing the South African economy over $216 billion in debt. University of Johannesburg Physics Profes- sor Hartmut Winkler is convinced Mr Gordhan was always under attack from the president’s supporters for his reluctance to endorse excessive expenditure demands. President Jacab Zuma. Picture: File ncertainty surrounding the future of the Kenya-Uganda advisory managing partner. Last week, KRC terminated the 25-year concession citing defaults on various parameters of the concession agreement by RVR. RVR managed to get a 30-day temporary relief after the High Court put an injunction on the execution of the termination notice, which gave the company a 120-day window to salvage the concession. In an earlier interview with The EastAfrican, Mr Okoth had exuded confidence that RVR would seal the deal with ECP within the timeframe. But with ECP pulling the plug, RVR is technically on its deathbed unless Qalaa digs into its coffers to settle the company’s outstanding financial obligations. In terminating the concession, KRC said that RVR has defaulted on three key terms of the concession agreement — namely standard of maintenance of conceded assets, freight volume targets and payment of concession fees. Rehabilitate locomotives On assets, RVR has failed to maintain the track, resulting in speed restrictions on 187 km of the main line, which is 17.3 per cent of the line. RVR has also failed to rehabilitate and maintain the locomotives, rolling stock, buildings and structures. On freight volume, the com- pany has failed to achieve targets as at the end of year nine, recording 1.1862 BNKM against a target of 2.1145. On fees, RVR has failed to settle concession fees totalling $4.1million as of December 2016, rent amounting to $1.7 million and another $20 million and $10,720 for life expired assets and life expired wagons and assets destroyed in accidents respectively. Since taking over the conces- sion to operate the 1,300 km metre gauge railway from Mombasa to Kampala in 2006, RVR has remained in the red and has failed to improve railway transport with its annual cargo haulage stagnating at 5 per cent of the total cargo arriving at the port of Mombasa. In a span of 12 years, RVR has changed hands four times.
Apr 8th 2017
Apr 22nd 2017