The Nairobi Solution: Ch.9

Erik stared again at the email from Dwight.

“Give me a call when you can. I need you to come to London.”

He reread the words searching for extra layers of meaning.

Why did Dwight need him to come to London? Was it to fire him? But then why say to give him a call when ‘you can’? It didn’t seem like the right language to use when you need to speak to someone so you can fire them. But you could never tell with Dwight.

It had been 3 weeks since the trip to Emali, the bad news from Niko and the phone calls to Dwight and Claire. He hadn’t wanted to speak to any of them since. He’d stayed in his office, depressed, and focused on bank paperwork.

Now here was Dwight telling him to come back to London.

He picked up his mobile and filled with gloom and dread called Dwight. As he clicked dial Erik made a final mental effort to try to sound upbeat.

“Hi Dwight. It’s Erik. I got your email. What’s up?”

“Hey Erik! Yes. I need you to come to London. When do you think you can make it over?” Dwight sounded strangely friendly. Like a completely different person from the last conversation.

“If you need me there quickly, I can take the BA flight on Wednesday night.”

“Yes. Do that.”

Erik took a big risk next, but Dwight seemed in a good mood and he wanted to know.

“May I ask what’s up in London? Is there something you want me to help with?”

“No. There’s someone I want you to meet. You know Opus? They want to make a bid for Turkana.”

“Opus Partners wants to buy Turkana? That’s great news!”

“Yeah. The price isn’t amazing, but we make a small profit, and the best part is it gets us out of this mess so we can focus on something else. Anyways, they want to meet with you. Part of the due diligence.”

“Tell them anytime Thursday afternoon. I’ll get in that morning, take a quick shower then go to Mayfair.”

“Great. You’re going to meet with Dipak who is a partner and leading the deal. Keep a look out for an email they are going to send through. There’s a whole bunch of documents they want to go over and discuss in the meeting. Thanks. See you soon.”

What amazing news. What a complete turn of events.

Opus Partners was a smaller EM focused private equity fund also based in London. There was a bit of a stink around Opus, but they knew emerging markets and would be comfortable owning an asset in Kenya. Their CEO had been investigated several times by the FCA for questionable transactions but had never been formally charged with anything.

Opus wasn’t the buyer Erik would have wished for Turkana, and the team here in Nairobi, but maybe it didn’t matter as long as Belway got paid and could exit. Likely Opus were getting a good deal from Dwight (0.8x book Erik guessed) with the plan to work through the East Africa Rail situation then get an even higher price down the road. 1.5x or maybe 2x if EM markets were hot. All in 2-3 years. It made sense.

Erik was excited as he booked his BA ticket to Heathrow. Nicole would be happy too. He was going home.

Later that week Erik emerged from Green Park tube station into the grey skies and rain of London. This was the complete opposite of Nairobi Erik thought. He had a short walk to Berkeley Square where Opus had their offices. Erik ran the bell at what had long ago been a nice private residence on the square but was now the posh offices for a private equity fund. A receptionist took his wet coat, hung it in the closet and escorted him to a conference room where Dipak and the rest of the Opus team were waiting for him.

Two hours later Erik stepped back into the rain again to give Dwight an update.

“How did it go?” Dwight asked.

“Good. I guess. They went over all the information we sent them. The financials, the regulatory updates, the internal risk reports, the auditor statements. They asked a lot about the East Africa Rail deal. They kept asking if everything had been disclosed. They also asked me to initial some of the disclosure documents we sent over. They said it was to prove they were verified by Turkana management.”

“That’s normal deal due diligence. They’re just being thorough.”

“Yes, I know. I guess. I was just surprised they didn’t ask anything about the economy, the new government, or the growth strategy of the bank, or anything. It was just all dotting I’s and crossing the T’s about the documents we sent them. Just wasn’t what I expected.”

“Sounds fine. They’ll probably ask you all that stuff in a later meeting. In the meantime, please stay in London until we get this closed. They told me they are willing to focus 100% on this and move quickly. So maybe work from the office here so you can give Opus your full attention and get this over the line.”

“Sure Dwight. Let’s get it done.”

For the next week Erik worked out of the Belway office near Liverpool Street. Mostly he was responding to information requests about Turkana from Dipak. The deal seemed to be moving along. It was also nice to be able to go home and for walks and dinners with Nicole.

Then on Thursday Dipak sent Erik the following email:

Subject: Updated SPA and Disclosure Schedule – Insurer Comments

Hi Erik,

Please find attached the latest mark-up of the Share Purchase Agreement and related Disclosure Schedules.

Nothing substantive — mostly definitional tightening and clarification following feedback from our advisors and insurer. We’ve expanded certain knowledge qualifiers and refined the East Africa Rail disclosure to ensure completeness.

Would be grateful if you could review and confirm the updated language, in particular:

· Clause 7.4 (Material Contracts – East Africa Rail)

· Definition of “Knowledge”

· Bring-down confirmation language for Closing

If possible, we’d appreciate your initials on the revised Disclosure Schedule (attached separately) confirming management verification.

Happy to discuss if helpful.

Best,

Dipak

Opus Partners

What was all this about “We’ve expanded certain knowledge qualifiers and refined the East Africa Rail disclosure to ensure completeness,” Erik thought feeling slightly uneasy.

And what was a “Definition of ‘Knowledge’?

And why are they referring to an insurer?

He was about to get up and ask Dwight, who was over at his terminal staring at stock prices, but something stopped him. He wanted to know more first.

He wanted to run this by Harry.

When most people think of London as a financial capital they think of the investment banks in Canary Wharf, the stock exchange and the fund managers in Mayfair, but underappreciated is that London is also the world’s largest insurance market. Erik couldn’t remember exactly what types of insurance Harry worked on, but it was specialty insurance for a Lloyds syndicate.

Later that week Erik and Harry were seated in a pub in Leadenhall Market where the everyone in the insurance market liked to meet and drink beer.

Harry had a printout of Dipak’s email in front of him.

“So. What do you think?” Erik asked.

“Run me through again what you sent them and what they asked in the meeting.”

Erik went over the events from the previous week.

“Hmm..”

“And they asked you to initial some disclosure documents while you were in their offices?”

“Yes. I realise I probably should have got legal advice first, but it seemed OK. They were the documents we sent then. It seemed to make sense.”

“And they didn’t ask you much about the business, or anything else?”

“No. That was what struck me as strange. Then this email seemed like more of the same. And then the mention of the insurance company going over all the documents. It made me want to run it by you. Dwight thinks this is all standard procedure.”

“And off the record as your friend. Is there anything material you probably should be disclosing?”

“Well… totally between you and me. There is a potential delay involving one of the major suppliers to the rail deal. But it’s not anything official stated, just a ‘likely delay’. Just a verbal phone conversation I had. Nothing’s written down and there is no way they could know it. So I left it out. And Dwight would definitely would want it out because it would kill the deal.”

“Hmm…..” Harry was thinking and kept looking at the printout of Dipak’s email.

Finally, he looked up.

“Erik.. I think given what you are saying that behind the scenes there is actually a delay to the East Africa Rail project (which they are asking a lot about), and now this email from Dipak asking exactly about it in highly specific language, I think you should consider the possibility Opus knows about the delay. Everything they are asking and doing (the extra schedules, the change in the language, getting you to initial the documents) double checking with the insurance company, could be to make sure their claim is 100% watertight if/when they need to file a Representations and Warranty claim that you never disclosed the delay.”

“And if they found something they would get a payout,” Erik mused.

“Like your Dwight guy said it could all be normal, but the fact you said they have been only focused on this and not asking about the rest of the business is suspicious. Erik, I would highly recommend getting private legal counsel before signing anything else from these guys.”

Thanks a lot Harry for reviewing this. You are confirming what I suspected. Thank you again.

Erik got up, left the pub and headed in the direction of the Thames for what would be a long walk. He needed to think.

First things first. Accept brutal truth number #1. Somehow Opus knows about the EcoRail delay and is setting up all the legal language to prove it was never disclosed to them and file a Representations and Warranties claim. Which fit exactly with the Opus reputation and now made sense.

But how did Opus find out about the EcoRail delay?

It could only have come from Dwight or Claire. Or, possibly from Niko. Did Opus know Niko somehow? And why would Niko tell that to Opus? Was there some relationship between Dwight, Niko and Opus he didn’t know about? He didn’t think so. That wasn’t it. And Claire? Some backdoor job offer to come back to London and do private equity? No way too convoluted. It wasn’t Claire.

Brutal truth number #2 was that Opus had to have learned about the EcoRail delay from Dwight.

But why would Dwight tell them that?

Erik kept walking and thinking. He crossed London Bridge over the Thames to the South Bank and started walking back up towards Westminster Bridge.

An upsetting possibility was taking shape in his mind.

Erik calls Dwight from Mukueni County and tells him about the EcoRail delay. Dwight freaks out. He knows the IFC is going to want to review things and delay the project. Eventually, the EcoRail FX problem would get resolved, the project is completed, and the loan repaid. It would all work out, but in the meantime the regulatory accounting would require the loan to be marked impaired, and the regulator would want more capital in the bank. Which Dwight would not want. Which was why he was furious on the call.

Then 3 weeks later all of a sudden Dwight’s happy and has found a buyer for the bank.

But how do you sell a bank with a major loan that is about to go bad?

There was one explanation which answered everything. And it fit why Dwight wasn’t concerned about any of the extra disclosure requirements Erik was being forced to sign as CEO of Turkana. Because Dwight wasn’t the one who was going to get investigated.

What if Dwight had offered Turkana Bank to Opus at a discount with the sweetener that they could file an insurance claim after the deal was closed. Meaning Opus knew about all the problems, and were intending to get both a discounted price for the bank, plus make an insurance claim that they were never informed of the EcoRail delays.

It would explain why Opus was the buyer. Opus were exactly the type of firm who would go for a deal like this. Opus would make money on the deal coming and going, and so would Dwight. Meanwhile, Erik’s would be the one who the insurance company would be calling. Dwight would say he was never involved in the operations of the bank and knew nothing. It was all Erik. Erik signed everything.

Erik sighed and kept walking. His shoes were getting wet, but he didn’t care. Somehow the rain and the evening lights across the Thames were calming.

An idea started to come to him. A potential way out of this trap.

He pulled his phone from his pocket and called Nicole.

“Hi Nic. I’m sorry I’m late. I went for a walk. Needed to clear my head. I should be home soon. But I’m going to need to head back to Nairobi tomorrow.”

“I know. It’s sudden. I have to meet a few people and do something. But the good news is it’s all going to be over soon, and I’ll be back in London for good.”

“OK Erik. See you soon, but whatever you have on your mind and plan on doing in Nairobi. Make sure it’s the right thing.”

“It is. Don’t worry. Love you.”

Dwight was going to have another thing coming.