In Summary
  • The Rai Group, with extensive interests ranging from pulp and paper plantations, paper manufacturing and sugar production – in Uganda, Kenya, and Malawi – were all along regarded as the top contenders.
  • Why the government agreed to continue negotiating with Rai in the face of an offer that was clearly inferior to the offer by Juja Paper Mills is one of the most intriguing asides to this story.
  • In a confidential memo to the Ministry of Industrialisation in May, last year, the receivers argued that – in their view – the best candidate for Panpaper was a large timber merchant attracted by an opportunity to harvest wood from government forests at subsidised rates.

The moment the receivers of the troubled Webuye-based Pan Africa Paper Mills Ltd (Panpaper) put the company on sale, is when the vultures started circling the carcass, waiting to swoop on this distressed firm at the earliest opportunity.

Indeed, buying a distressed company, or a firm being auctioned by the government in a privatisation transaction, has become a fashionable way of making big money in Kenya.

In Panpaper’s case, there was opportunity to make big bucks by stripping its assets.

It is noteworthy that at the time the receivers were taking over six years ago, the assets of the company were valued at Sh18 billion.

There was also money to be earned from the value that had been created from the more than Sh2 billion the government had pumped into the company as it tried to revive it.

As it turned out, the battle to clinch the lucrative deal eventually narrowed to a two-horse race: Between famous timber merchants and one of the largest family-owned conglomorates in East Africa – the Rai Group, in one corner, and a medium-sized Ruiru-based paper maker, Juja Pulp and Paper Mill Ltd, on the other.

The Rai Group, with extensive interests ranging from pulp and paper plantations, paper manufacturing and sugar production – in Uganda, Kenya, and Malawi – were all along regarded as the top contenders.

Indeed, it was all assumed that it would be a walk in the path for the Rai Group.

But as it was to turn out, Juja Pulp and Paper Mills, which is owned by the Gudka Group of companies, confounded pundits by putting up a stiff challenge to the Rai Group’s bid.

With the race approaching the finishing line, an explosive controversy erupted between the receivers and the Ministry of Industrialisation, with the receivers citing interference in the sale process.

ABRUPTLY RESIGNED

In a drammatic development, the receivers – Messrs Ian Small and Kieran Day of the insolvency practice Bregbies and Traynor Ltd – abruptly resigned.

The disagreement left the receivers and the industrialisation ministry exchanging acrimonious letters.

From the evidence, the bone of contention was the receiver’s feeling that the government was leaning on one side between the two bidders.

According to correspondence seen by the Suday Nation, the Rai Group had started by placing an initial offer of $4.2 million (Sh360 million), compared to Juja’s offer of Sh1 billion.

Juja stuck to its offer throughout the process. However, in  the very last stages, Rai improved its bid to Sh1.1 billion — marginally beating its opponent.

With the formal bidding process ending with Rai at the front, both the government and receivers agreed to proceed with negotiation with the Rai Group at the agreed price of Sh1.1 billion.

However, documents show that the moment Juja Paper Mills dropped out of the scene, Rai quickly revised its offer downwards to Sh900 million.

INTRIGUING NEGOTIATIONS

Why the government agreed to continue negotiating with Rai in the face of an offer that was clearly inferior to the offer by Juja Paper Mills is one of the most intriguing asides to this story.

Aparrently, the receivers had wanted to open new negotiations with Juja Paper Mills, arguing that their hands were tied by receivership laws to sell Panpaper only to the highest bidder.

In a letter to the Treasury dated October 15, 2014, Mr Small argues that they risked litigation if they sold the company to the Rai Group.

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