TransCentury has announced that it will exercise an option that will result in a change of its 34% shareholding in Rift Valley Railways (RVR). The cautionary statement expects the deal to be done by March 31. The company does not disclose whether it is looking to reduce or increase its position. Given the shareholding structure in Kenya Uganda Railway holdings with Citadel having the controlling stake, we believe the transaction could involve the two top shareholders. In the quarter to October 2013 RVR secured 20 locomotives which will double capacity in 2014. RVR is also now EBITDA positive and has completed a new operational control centre which puts it ahead of most freight operators globally. Why then would Citadel or TransCentury look to exit? In 2010, Citadel broke a shareholder deadlock by purchasing interests of the minority shareholders in RVR to get the existing controlling stake. We do not believe Citadel would give up control over what they consider a critical transport corridor, and see it as likely that they would have provided TransCentury with a put option so that they could eventually consolidate their position. RVR is in line with Citadel’s strategy of buying stable, low margin businesses. We believe TransCentury is a bit stretched on the funding side as it starts to shift more towards minerals, oil and gas sector which could give further credence to an asset sale. If our view is wrong, then we expect to see a significant cash call by TransCentury during 2014. (Company filing, Standard Investment Bank)