30 August 2010

Kampala — The restructuring exercise of the Rift Valley Railways consortium, the company that operates the Kenya and Uganda railways has been completed.

This development gives Citadel Capital, Africa's leading equity firm a controlling stake in the new company Rift Valley Railways International (RVRI), the entity that owns 100% of each of the Kenya and Uganda railways concession companies.

"Citadel confirmed today that its shareholding in RVRI .....has risen to 51% through its subsidiary Ambiance Ventures Ltd as it completed the restructuring first announced in March 2010," a statement from Citadel Capital reads in part.

RVRI holds a 21-year concession to operate the century-old Kenya-Uganda rail line with some 2,352 kilometers of track linking the Indian Ocean port of Mombasa in Kenya and through Kenya and Uganda, including the capital Kampala.

RVRI's other shareholders include Trans-Century Limited, a Kenya-based investment company (whose shareholding rose to 34% from 20% pre-transaction), and Bomi Holdings Ltd, a Ugandan private investor (holding 15%).

"We look forward to working with our partners to build the reliable, efficient and safe national rail system Kenyans and Ugandans truly deserve," said Karim Sadek, Managing Director at Citadel Capital.

"Citadel Caspital and its partners in RVRI are grateful for the support not just of the governments of Kenya and Uganda, but also of the RVRI lenders, clients, suppliers and above all its dedicated management and staff."

Citadel Capital and the other RVRI shareholders are now finalizing a sustainable business and investment plan that includes a US$287 million capital expenditure program to rehabilitate infrastructure and rolling stock.

The firm will also work to strengthen RVRI's management team and is in advanced stages of negotiation with a global rail consultant to bring international best practices.

RVRI will also continue discussions with the governments of Kenya and Uganda on the revitalization of the concession across its core African footprint. According to Sadek, Citadel Capital sees transport costs being a major impediment to economic growth.

He said high costs and systemic inefficiency greatly reduce the competitiveness of African businesses, as EAC reports clearly underline.

According to Citadel, transport prices in East Africa are among the highest in the world, with transport to Uganda from Kenya presently costing more than US$ 0.13 per ton/kilometer (the standard industry metric) due in large part to heavy reliance on trucking.

"A lack of operating capacity has resulted in rail capturing less than 10% of East Africa's transport market," Sadek said.

He explained that an efficient rail network could, in time, bring East African transport costs down by as much as 35% due to the operational and fuel efficiency of shipping by rail.

RVRI today hauls just over 1 million tons per annum out of an existing market of 16 million tons being handled in Mombasa Port. RVRI's goal is to see that figure grow to 5 million tons per year by 2015.

Citadel Capital focuses on building regional platforms in select industries through acquisitions, turnarounds, and greenfields executed via Opportunity-Specific Funds.

In March 2009, Citadel Capital bought a 17.5% of Sheltam Rail Corp., the South African company that was the lead investor in the struggling RVR, the consortium that won the bid in 2005 to manage Kenya and Uganda's rail line.

Citadel will invest $150 m over the next five years, and much more thereafter. "Citadel Capital will look to inject more than $150 million in Kenya Uganda Railways over the coming five years," said Sadek, the MD in an earlier communication.

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