How debt-fuelled expansion dimmed Trans-Century’s star

Micael Waweru.

“Kibaki orphans.” This is the tag that now defines the  “Club of 29” – a group of elite central Kenya businessmen who founded Trans-Century, arguably one of the country’s erstwhile most successful chamas (investment groups).

In a telling memoir and interview with this writer, Michael Waweru, a former Kenya Revenue Authority (KRA) commissioner-general and one of Trans-Century’s founding members, chronicles its early history.

Mr Waweru, who is currently Trans-Century’s largest individual shareholder, stood to be a billionaire when the firm did its initial public offering (IPO) in 2011, with its stock price at Sh50.

His stake has since been watered down, with Trans-Century’s share price closing at Sh1.28 during last Friday’s trading.

“At the time of writing this book, the TCL (Trans-Century Ltd) shares were trading at Sh3.30, so I went from being a paper billionaire to having shares valued at roughly Sh70 million,” Waweru writes in his autobiography, Kenya’s Tax Czar.

“People often asked me why I didn’t sell my shares during the IPO or even shortly after since I would have made a killing. But the thought of selling never occurred to me, and even when the share price went down so low, I was confident that TCL would turn around, and that I would recoup my investment in the future.

“East African Cables had started doing well, and this was bound to trigger the turnaround of the rest of the TCL Group of companies because it was the flagship,” he adds.

EA Cables, sold to Trans-Century by the shrewd late billionaire Naushad Merali, was one of the investment firm’s biggest moneymaker in the Kibaki era but has since fallen on hard times, with its stock currently trading at Sh1.24 - an epic fall from highs of Sh645 in the early years of the Kibaki regime. 

Waweru admits that they allowed the early success of EA Cables to go into their heads.

“I believe our biggest mistake was using debt to expand rather than equity, what I would call uncontrolled expansion financed by debt. As an investor, you should always balance your debt by injecting enough capital, and we didn’t do that,” writes the trained accountant in the book.

“The 29 original TCL members had huge dreams but very shallow pockets. We allowed the early success of EA Cables to go to our heads and also assumed that that economy would continue to be favourable, and ended up paying the price.”  

The story of Trans-Century began in 1995 on a sunny afternoon at the Muthaiga Golf Club.

Here, four entrepreneurs usually met for a routine round of golf. As they teed off, they would exchange business ideas and occasionally bailed each other out with loans.

But the story is really about the wave of optimism that was sweeping the country.

The 1990s had ushered in multiparty politics and a 10-year presidential term limit.  

“Each of the four men playing golf in Muthaiga that day knew what it was like to apply for an import licence and not get approval or to lose a tender simply because he was from the Gikuyu community...,” writes the former KRA boss.

The goal was to contribute Sh50 million. They would contribute a million shillings each, invite trusted friends to do the same to reach their target.

This would also help onboard individuals with diverse skills and experiences that would benefit the group in different economic sectors.

The four were James Gachui, James Kahiu, Joe Kamau and Jimnah Mbaru. The idea was later fleshed out when Kamau invited the others to a meeting with Joseph Magari, the first permanent secretary in the Ministry of Finance under President Kibaki, and Njogu Kariithi.  

The Sh50 million proved a difficult target, especially in the 90s.

“By 1997, the group had 29 members who between them had raised about Sh21 million, with most of them contributing slowly in instalments,” writes Waweru.

They immediately started investing the cash, first putting it into a fixed deposit account to earn interest as they planned further.

The name Trans-Century signalled the coming of the new millennium, with TCL incorporated in May 1997.

Waweru was introduced to the group by Wanjuki Muchemi, a former solicitor general.

At the onset, the firm operated informally, with members being volunteers using their various skill sets.

Then they began to invest seriously. The first investment was $300,000 (Sh21 million) in Castle Brewery Kenya Ltd, the local subsidiary of South African Breweries (SAB), which was later acquired by Belgium’s Anheuser-Busch InBev.

The entry of the South Africans into Kenya would trigger the infamous “beer wars” of the late 90s as they sought to oust the monopoly of East African Breweries (EABL).

However, the venture flopped.

“The problem was with the South Africans who were very arrogant and refused to heed advice from the local investors. Granted, SAB was a market leader in South Africa, but they didn’t know the Kenyan market,” writes Waweru.

They exited the market. Fortunately, TCL did not lose their investment as SAB offered to refund it.

The second investment is the most interesting and would carve their names in Kenya’s economic history.

In 2003, Merali’s Sameer Group sold East African Cables to Trans-Century Group. Merali was a buddy of Peter Kanyago, one of the group members.

The businessman had earmarked four of his businesses - East African Cables, Sameer Investments, Sasini Tea and Coffee and tyre maker Firestone East Africa, now the manufacturer of Yana tyres - for sale.

The asking price for the latter three was too high.

“How much do you want for EA Cables?” Kanyago asked Merali.