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State concludes controversial deal to acquire 40pc stake in De La Rue

By Moses Michira | August 19th 2016
By Moses Michira | August 19th 2016

Kenya has concluded the acquisition of a 40 per cent stake in UK-owned currency printing firm, De La Rue, at Sh650 million, putting an end to one of the country’s most controversial joint venture transactions.

A dip in the value of the Sterling Pound linked to ‘Brexit’ resulted in Sh100 million savings for Treasury as the buying price is in British currency (£5 million).

National Treasury Cabinet Secretary Henry Rotich signed off the acquisition yesterday and defended the deal as “real value” for money.

“This is a company that is printing currencies for other countries in the region; it is a worthy investment and a strategic investment,” Rotich said.

At the earlier exchange rate, the price would have been Sh750 million. Conclusion of the deal that was highly contested by the last Parliament was only approved by the Cabinet in its last meeting of last month, but did not have the input of MPs.

Yesterday’s deal places the value of the Kenyan operations of the security printing firm, once described by a Committee of Parliament as “analogue”, at about Sh1.7 billion (£12.5 million).

Former finance minister Amos Kimunya just escaped Parliamentary censure relating to the joint venture, which he was accused of personally pushing, without the knowledge of the rest of the Cabinet.

Mr Kimunya had also cancelled a Sh3.8 billion-worth currency tender for 1.7 billion notes, in favour of several smaller tenders that would ultimately cost Sh5.6 billion to provide printing of less than 1.5 billion bills.

Rotich said all the objections raised by the previous Parliament had been addressed, including a 10-year exclusive printing contract for the Ruaraka-based firm to provide guaranteed business, the costs notwithstanding.

He denied that the joint venture would lock the Government to only procure currency notes and coins from the UK firm. “That condition is no longer part of the transaction that we have signed today,” explained the Treasury boss, adding there were “no strings attached” to the investment.

In any case, he added, it was a commercial venture like Safaricom or Kenya Airways. The State owns 35 per cent stake in the highly profitable telco giant and 29 per cent shareholding in the national carrier.

The investment would, however, fly in the face of a vague Government policy of divesting from existing commercial ventures, in favour of the private sector and individuals.

Rotich said the State would not avoid investing in viable businesses as is the case with the currency printing firm. Officials of the company said the business had reported about Sh400 million in profits for 2015, and that the projections showed a sustainable commercial entity.

What we earned

“We made about three to four million Sterling Pounds,” Martin Sutherland, the chief executive of De La Rue said at the signing of the joint venture. It was not immediately possible for the company or Rotich to predict the size of dividends that the State would earn from the business.

Public Accounts Committee of the last Parliament bitterly resisted the acquisition of a stake in the printing business, citing that the currency procurement could be more competitive through open bidding.

Bonny Khalwale, who chaired the PAC, told Parliament that Central Bank of Kenya objected to the joint venture.

“CBK was strongly opposed to Treasury and De La Rue’s joint venture agreement under which the bank would be tied by Treasury to signing a 10-year banknote printing contract with De La Rue International Ltd. This would contravene government procurement regulations and procedures as the bank would not be guaranteed a fair market price during the ten years,” Khalwale had argued.

Rotich said the divorce of the joint venture from the exclusive printing contract should rest any questions that were earlier raised by MPs. In the compromise, he said the CBK would still be free to procure banknotes from any currency printer through competitive bidding.

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