The Nairobi Solution: Ch.10

Erik exited Jomo Kenyatta’s Terminal 2 into the bright blue sky. It was nice to be back. His driver was waiting and waved.

“Good to see you back sir! May I take your bag?

No. It’s fine. I got it. It’s just a roller. Can we swing by my apartment so I can take a shower? Then we need to go to the Horizon offices.”

It had been an overnight flight in the back of the bus on BA. Which was fine, but he needed a shower to refresh, and change clothes before his meeting.

He got in the back of the Landcruiser with its nice leather seats. He really liked the Landcruiser perk. He was going to miss it. Erik thought ahead to the next 2-3 days. Trying to think if he was missing anything. It was impossible to predict how it would all play out exactly, but this felt right.

Later that afternoon after a long meeting with John Kinyua Erik exited the Horizon offices. The meeting with John had gone well. Of course it had. John probably still couldn’t believe what Erik had just presented him.

Next he called Lloyd, his CFO.

“Lloyd. Hi. It’s Erik.”

“Erik. Hi there! How is the London weather? Not too depressing I hope.”

“Actually, I’m back in Nairobi already.”

“What? Why? I thought you were staying there until the deal was signed?”

“Change of plans. Can you please contact Daniel Wanaina’s office at the Central Bank and say we want to meet with him tomorrow morning? And say it’s important.”

“You want us to meet with Daniel tomorrow morning? Please tell me what’s up.”

“I’d rather not and the less you know the better for you. Just ask Daniel for the meeting and please email me when it’s confirmed. My guess is you won’t have any trouble getting the meeting.”

Erik assumed John Kinyua was up in his office right now talking on the phone to Daniel working out the details. Hence Daniel would know exactly why Erik wanted to meet when Lloyd contacted him.

The Nairobi Solution was underway.

The next morning at 9:00am Erik and Lloyd, dressed in their suits, presented themselves to the Office of Bank Supervision. The receptionist directed them to the same large board room where they had met for their last supervisory meeting. The one where they had celebrated with beer and chicken wings afterwards.

They waited by themselves in the boardroom in silence for 5 minutes before Daniel and two other members of his regulatory team entered carrying notebooks and looking stern. They sat down across from Erik and Lloyd.

“Erik, Lloyd emailed me requesting that you wanted to meet about something important.” Daniel said gravely.

“Yes, we do. Thank you for being so accommodating with your schedule. Something has come up and in the spirit of our improved relations with the Office of Bank Supervision we wanted to disclose it as soon as possible.”

“And what is it you feel you need to disclose.” Daniel said slowly.

“You are of course well aware of Turkana Trust’s large single name exposure to the East Africa Rail SPV. It’s an important loan to the bank and because of this we have been working to assist the CEO, Ms Claire Delacroix, with the project. Obviously, it is in the best interests for both our companies for the rail project to be successful. And for Kenya” Erik added.

“Yes. Go on.”

“Recently, we assisted East Africa Rail in finding a new supplier of rolling stock for the project after their original supplier, China Eastern Rail Systems, changed the price of the contract. It was a substantial change in price and would have created an entire review of the project’s feasibility by the IFC. So to try and help solve the problem, and through contacts at Belway Capital we were able to find an alternative manufacturer in Zimbabwe, called EcoRail. EcoRail agreed to take on the rolling stock order at the same original price in the budget so East Africa Rail and EcoRail signed a new agreement.”

“OK. Go on.”

“As part of this agreement two regulatory matters have come up which we feel we need to disclose.”

Daniel said nothing.

Erik continued.

“First, EcoRail had the capability to take on the East Africa Rail project, but had had minimal activity in the prior years and so first needed a loan to revitalise their business as well as to refinance a previous loan they had with Standard Bank. In order to keep the East Africa Rail project on track, and to provide some working capital, I authorised Turkana Trust to disburse a $12 million loan to EcoRail’s subsidiary in Mauritius. This was in July, after our June review and in contradiction of the Central Bank’s guidance to not make new disbursements.”

Daniel breathed heavily.

“And the second regulatory matter?” asked icily.

Daniel was playing this well Erik thought. If Nairobi worked how he thought it did.

“The second issue is that there are currently FX market disruptions in Zimbabwe and EcoRail is having difficulty sourcing steel and parts for the order. This is likely to cause temporary delays to the East Africa Rail project. We feel we need to notify you because these unexpected delays occurring so quickly after the new supplier agreement may, in our opinion, trigger a project review by the IFC which could be lengthy. There is a risk that during this review the IFC may pause all project payments including loan payments to Turkana Trust. None of this has happened yet, but like we said, we value our strong regulatory relationship with the Central Bank of Kenya and want to be transparent and forthright about any banking risks.”

“Did Ms Delacroix know about these EcoRail delays? Because in your latest regulatory filings, which included in the addendum the East Africa Rail Board pack there was no mention of this delay.”

“No, Ms Delacroix doesn’t know about the delays yet. I only found out about it through my connection with the owner of EcoRail. And as soon as a I found out about the delay I immediately came to you and asked for this meeting. I thought it was best to inform you first because this might be market sensitive information.”

Daniel looked across the table at Erik. Erik imagined Daniel must be struggling to not roll his eyes at the kabuki theater they were both playing. After a pause Daniel responded.

“Well. You were right to come to us with these two regulatory matters. The first, the loan disbursement, is a clear regulatory breach. And a serious one. The second matter implies there is a risk the East Africa Rail loan will need to be reclassified as Stage 2. This means a thorough regulatory review and calculation of the potential loss. Turkana Trust is still a fragile institution. A potential credit loss of this size will be material.”

“We are aware of that sir.”

“OK. We will have to convene and likely bring in the Central Bank Governor as well. Thank you for coming in and thank you for your forthrightness. Please go back to your offices and be available throughout the day. We will contact you with our next steps. Good day.”

Later that day at 6pm, after the rest of the Turkana Trust workers had gone home and the local Kenyan stock market was closed, Erik, Lloyd and a small team, opened the front door of their offices to the teams from the Office of Bank Supervision and Horizon Bank. Erik and Lloyd took them up to the 8^th floor where all the files were prepared. Erik and Lloyd answered questions and offered coffees as both teams worked through the night.

The next morning the news hit the streets of Nairobi.

Turkana Trust had been taken into administration by the regulators and sold to Horizon Bank for KES 200 million (less than $2 million). According to the regulatory statement issued by the Bank of Supervision Turkana Trust had asset quality problems and needed an immediate capital injection which Horizon Bank would provide. Importantly, the depositors of Turkana Trust did not need to worry. They were now clients of the Horizon Bank and their money was safe.

The first incoming call was from Claire.

“Qu’est-ce que c’est!!! Turkana is being taken over by the regulator?? What is the meaning of this? Erik! I need a full explanation. Does this have anything to do with the rail project?”

“Claire. Hi. Yes. The bank is being taken over, but it’s OK. The project is fine. It doesn’t affect anything. The only change is you will be dealing with John Kinyua now from Horizon. John and I have already discussed everything. He backs you and will get your railway done. Don’t worry. Anything else we should discuss later. Someday we’ll have a nice coffee in Paris and I’ll tell you everything. For now, you know nothing and stick exactly to what you wrote in your board of director reports. You will be fine. Now it’s best for both of us if I hang up.”

And hour late came the biggie. Dwight.

“WHAT….. THE…. FUCK???? What the fuck am I reading?” Dwight exclaimed down the phone.

“You are supposed to be in London signing our deal with Dipak and instead I’m reading news on Bloomberg that my entire bank has been taken over for $1.5 million. I don’t know how this happened, and I don’t know what game you think you are playing, but you better have a really good lawyer because I am coming after you for this. You are going to be the one responsible for this loss.”

“I was going to need a lawyer anyways.” Erik said calmly. Letting that register with Dwight.

“I don’t know what that is supposed to mean.”

“I think you do. Do what you need to do. Speak to your lawyers. I’ll be back in London next week.”

Finally, a call from Nicole.

“Hey babe. Are you OK? I read the news link you sent. I didn’t understand everything. It doesn’t sound good. Is this why you went back to Nairobi? You can tell me more about what happened when you get back. And don’t worry. It will work out. We’ll be fine. Love you.”

Things were not fine. Erik didn’t see how he would ever have a job again. What had had happened in Nairobi was not something you could explain to a recruiter back in London.

Yet, the Nairobi Solution felt right somehow. It was right for the rail project, right for the team at Turkana, right for Kenya and right for Claire. And somehow, he didn’t know how, he thought it would be alright for him too.

Epilogue:

One year later.

Erik liked his small office in Hammersmith and it’s view of the Thames. It wasn’t a fancy address in the City, but he could come here and do his work in peace and quiet. It was near a section of the river were many of the rowing clubs trained. When he needed a break to think he would stare out the window and watch the rowers.

After the events in Nairobi Dwight’s lawyers had sent some nasty letters, but in the end it had gone nowhere. Everything Erik had done was by the book, and Dwight knew he couldn’t push too hard without exposing the fragile situation of what he had tried to pull off with Opus.

But events in Nairobi also meant Erik was no longer hireable as an analyst or portfolio manager in the City. His career had gone too far off the conventional rails. It was impossible to explain to anyone. Instead, he had started a small consulting firm advising other private equity funds on their Africa investments.

Erik wasn’t sure of his future, or how would get a normal job again, but he was coming to peace with it. His path was apparently not meant to be normal.

A few months ago, there had been a story in the FT about the strength of the Kenyan Schilling along with a paragraph about the surprising growth in Kenyan exports. He had smiled while reading this. It reminded Erik of Grace and her chia seeds. He hoped she was doing well with 15 Degrees.

Today Erik was in his office reading some market news when his phone rang.

He looked down at the screen to see who it was and was surprised. It was Niko. Niko from Zimbabwe. They hadn’t spoken since the call in Mukueni County where Niko had given him the bad news about EcoRail.

“Niko. Hi.”

“I’m good. It’s been awhile. How are you? How are things on your end?”

Erik listened while Niko explained why he was calling.

“It’s a new stock exchange? And it trades in US$’s?”

“How much did you invest?”

Erik tapped his pen on the desk and looked pensive.

“Would it mean moving to Zimbabwe?”

Erik stood up from the desk and walked over to the window. He looked out at the Thames and the rowers, and smiled, still listening to Niko on the other end.

“Obviously, I would need to think about it and talk to Nicole, but it sounds interesting.”

“Oh. One other thing. Does it have a Landcruiser?”

“OK. See you in 2 weeks.”

THE END