A few Pan Paper facts courtesy of Jaindi Kisero. #Tunachesewo

[SIZE=6]It makes no sense at all to sell Panpaper for a paltry Sh900m[/SIZE]


I do not agree that the best way to revive the troubled Panpaper is to sell what was once the largest paper maker in East Africa to a timber merchant for a song.

I have it on good authority that the National Treasury and the Ministry of Industrialisation are about to flog the company to the Rai Group at a price of Sh900 million.

As a matter of fact, an agreement for the purchase of the company has already been negotiated.

Should it not be obvious to everyone that in seeking to purchase Panpaper, the only value proposition for the Rai Group in the whole deal is the forest licence from the Kenya Forest Service?

Does it really make sense to put a long-term forest licence into the hands of a timber merchant?

Who is going to monitor the arrangement to make sure that timber harvested from government forests at concessionary prices for paper manufacturing is not diverted to the timber business?

Has this agreement been properly negotiated in regard to issues of conflict of interest?


In my view, the government has, in the negotiations to sell Panpaper, bent over backwards to give the Rai Group too many concessions.

For instance, the parties have agreed that the share and purchase agreement will not be signed until the following conditions have been met:

First, that the application for the Kenya Forest Service licence by Panpaper be approved.

Second, that the National Land Commission issue titles to all untitled properties belonging to Panpaper.

Third, that all title documents owned by the company be transferred to the Rai Group.

Clearly, the buyers have their eyes set on Panpaper’s land and property.

In retrospect, the taxpayer has, in the name of trying to revive Panpaper, borne a huge burden only for the company to end up being sold to a timber merchant.

In 2012, the government gave out a whopping Sh2 billion to the Ministry of Industrialisation to revive the plant.

The money was deposited in a special account and ring-fenced against being spent by the ministry on any other activity.

More millions were released for trial production runs to keep the plant running and operational and to prevent the machines from rusting from disuse.

We have spent billions to revive a company that we are now about to sell for a paltry Sh900 million?


We must also not forget that the government, in the name of reviving Panpaper, signed away hundreds of millions of shillings in VAT refunds that Panpaper owed the Kenya Revenue Authority.

In addition, the government signed an agreement in which it transferred all the debts owed by Panpaper to short-term lenders.

On top of it all, the government paid Panpaper’s short-term lenders a total of Sh400 million in cash so as to get this pesky lot of creditors out of the way.

At one point, the government mooted a plan to buy the company from the long-term lenders, restructure it, and turn it around into a fully fledged parastatal operating under the Industrialisation Ministry.

As a matter of fact, in July 2013, the Treasury and the Office of the Attorney-General even went to the extent of incorporating a new government-owned company by the name Webuye Paper Mills Ltd, which was to take over the assets of the company from long-term lenders.

Is a paper plant in the image of Panpaper commercially viable? Is it possible to produce paper competitively?


I do not know, but I think that considering the billions of shillings in public resources that have been poured into reviving the company, we should, instead of selling Panpaper to a timber merchant, be thinking outside the box and use the vast land it owns in Webuye to set up industrial parks and a special economic zone.

Indeed, Webuye town is an attractive location for an industrial park.

There is adequate land, a railway siding, a good road network, and proximity to Kenya’ largest trading partner - Uganda.

And we now have the legal framework for special economic zones.

Last year, Parliament finally passed a law to create not only a new authority to run special economic zones, but a framework for setting up incentives for investors, including tax holidays, exemptions from customs and excise duties, and a raft of financial incentives.

We could make Webuye the first trans-boundary special economic zone in Africa.

If anything, the National Environment Management Authority has previously expressed concern about the company’s pollution of the environment.

The Mount Elgon County Council raised concerns about the sustainable harvesting of trees from the forest.

Selling Panpaper to a timber merchant just does not make sense. Period.

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[SIZE=6]Intrigues and unanswered queries in government’s sale of Panpaper[/SIZE]


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The moment the receivers of the troubled Webuye-based Pan Africa Paper Mills Ltd (Panpaper) put the company on sale, is when the vultures started circling the carcass, waiting to swoop on this distressed firm at the earliest opportunity.

Indeed, buying a distressed company, or a firm being auctioned by the government in a privatisation transaction, has become a fashionable way of making big money in Kenya.

In Panpaper’s case, there was opportunity to make big bucks by stripping its assets.

It is noteworthy that at the time the receivers were taking over six years ago, the assets of the company were valued at Sh18 billion.

There was also money to be earned from the value that had been created from the more than Sh2 billion the government had pumped into the company as it tried to revive it.

As it turned out, the battle to clinch the lucrative deal eventually narrowed to a two-horse race: Between famous timber merchants and one of the largest family-owned conglomorates in East Africa – the Rai Group, in one corner, and a medium-sized Ruiru-based paper maker, Juja Pulp and Paper Mill Ltd, on the other.

The Rai Group, with extensive interests ranging from pulp and paper plantations, paper manufacturing and sugar production – in Uganda, Kenya, and Malawi – were all along regarded as the top contenders.

Indeed, it was all assumed that it would be a walk in the path for the Rai Group.

But as it was to turn out, Juja Pulp and Paper Mills, which is owned by the Gudka Group of companies, confounded pundits by putting up a stiff challenge to the Rai Group’s bid.

With the race approaching the finishing line, an explosive controversy erupted between the receivers and the Ministry of Industrialisation, with the receivers citing interference in the sale process.


In a drammatic development, the receivers – Messrs Ian Small and Kieran Day of the insolvency practice Bregbies and Traynor Ltd – abruptly resigned.

The disagreement left the receivers and the industrialisation ministry exchanging acrimonious letters.

From the evidence, the bone of contention was the receiver’s feeling that the government was leaning on one side between the two bidders.

According to correspondence seen by the Suday Nation, the Rai Group had started by placing an initial offer of $4.2 million (Sh360 million), compared to Juja’s offer of Sh1 billion.

Juja stuck to its offer throughout the process. However, in the very last stages, Rai improved its bid to Sh1.1 billion — marginally beating its opponent.

With the formal bidding process ending with Rai at the front, both the government and receivers agreed to proceed with negotiation with the Rai Group at the agreed price of Sh1.1 billion.

However, documents show that the moment Juja Paper Mills dropped out of the scene, Rai quickly revised its offer downwards to Sh900 million.


Why the government agreed to continue negotiating with Rai in the face of an offer that was clearly inferior to the offer by Juja Paper Mills is one of the most intriguing asides to this story.

Aparrently, the receivers had wanted to open new negotiations with Juja Paper Mills, arguing that their hands were tied by receivership laws to sell Panpaper only to the highest bidder.

In a letter to the Treasury dated October 15, 2014, Mr Small argues that they risked litigation if they sold the company to the Rai Group.

“We cannot be certain at this time that the offer currently being pursued is in the best interest of the secured creditors of the company,” he said, charging that the revision of the offer by the Rai Group was below the next highest offer Juja’s).

“We regret that we can no longer continue to act in this matter as we cannot discharge our duties with the level of professional conduct we would expect,” the receivers said.

If they thought their resignation threat was going to force the government to persuade them to stay on, they were dead wrong.

“Now that you have resigned, further correspondence on this issue will not be useful,” said Industrialisation Secretary Adan Mohammed.

“Any assets you hold should be surrendered to the new receivers as soon as the appointment is made,” the minister added.

With the receivers out of the way, and the government bent on going on with the deal as quickly as possible, all indications are that Panpaper is going to end up in the hands of the Rai Group.

The group also owns Mufindi Paper Mills in Iringa, Tanzania, which they purchased in 2006 under a privatisation programme.

Whether the sale will lead to the re-opening of Panpaper remains to be seen.

The option of selling the company has been on the table since May, last year.


Long before Panpaper was put on the chopping block, the receivers wrote to the government proposing the timber merchant option.

In a confidential memo to the Ministry of Industrialisation in May, last year, the receivers argued that – in their view – the best candidate for Panpaper was a large timber merchant attracted by an opportunity to harvest wood from government forests at subsidised rates.

A timber licence, they argued, would be a key attraction because any timber merchant coming forth would want to harvest wood and use it for purposes other than paper production itself.

“The purchaser may not intend to operate the Panpaper mill at full capacity,” said the receiver in the letter.

In a nutshell, the model preffered by the receivers was not a paper manufacturer per se, but a business which while maintaining some limited paper-making activity, would basically be doing timber business.

If the ultimate objective is to revive Panpaper, what is the point of selling to a timber merchant whose prime motive is to access government forests on the cheap?

Several questions arise. Does it, really, make sense to – in the name of reviving Panpaper – grant a private timber merchant a 30-year licence to harvest wood from government forest at subsidised rates?

And, what exactly does the government want to achieve by reviving Panpaper: a commercially viable entity running on a profit basis or a state-controlled entity that will play a broader developmental role in the economy of western Kenya?

These questions are pertinent because according to the original thinking by the government, the State was supposed to buy off Panpaper’s long-term lenders and transform it into a fully-fledged parastatal under the Ministry of industrialisation.

Indeed, as far back as July last year, the Attorney General and the Treasury even went to the extent of incorporating a new government-owned company by the name Webuye Paper Mills, which was to take over Panpaper’s assets from the company’s long-term lenders.

At one stage, the government set aside Sh900 million to be used to pay off the lenders. But somewhere along the way the idea of turning Panpaper into a fully-fledged parastatal was quietly dropped.

Why did the government drop the idea of outright purchase of the assets of the assets of the company?

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[SIZE=6]Who is to blame for Panpaper woes?

Thursday, October 24 2013[/SIZE]
I don’t like receivers. The fees they charge are usually too high- and they tend to sell assets cheaply. And once they move into a distressed company’s premises, very little information filters through.

I also think that part of the reasons why receivers are unpopular in this country is because we don’t understand their role very well. We assume that receivership is supposed to provide a moratorium to allow time for the company to be restructured.

The truth of the matter is that the principle job of a receiver is to realise securities for creditors. The government made a tactical mistake in allowing receivers to assume a dominant position in the process of reviving the Webuye-based Pan Africa Paper Mills Ltd.

The receivers in Webuye have become very powerful because they stand between the government and a group of long-term lenders who are not interested in Panpaper’s revival at all. These vulture funds have made it clear that they want to make as much money as they can from the sale of Panpaper. They came into the picture only recently when the receivers reported to the company that they were ready to play ball.

What are the chances that Panpaper will be revived into the robust paper maker it once was? The other day, Industrialisation Cabinet secretary Adan Mohamed called to assure me that the government will not allow Panpaper to go to timber merchant or to be sold in bits.

He promised that his ministry will do the very best to ensure that the company is revived to the level of activity it maintained before it shut in March 2009.

Mohamed said that the company’s revival plans were going on under full consultations with the leadership of Bungoma County who he said fully supported the approach the government had taken.

He was responding to a story carried in this newspaper that reported the hitches surrounding the revival of the company. Panpaper’s revival plans have been an intriguing story of twist and turns.

If you have been following the saga since the days of the Birla group, you may wonder where these intransigent vulture funds appeared from.

I blame it on the government. They were attracted here by the statements that government officials were making about plans to revive the company.

They loved the fact that the government was pumping money into the company. Former president Mwai Kibaki visited Webuye where he declared that the company would be revived. Former Prime Minister Raila Odinga also issued several public statements supporting the company’s revival.

In my view, these statements are what encouraged the vulture funds to buy Panpaper’s debts in the international market. Because they now rank as senior debtors, they are in a strong position to get what they want.

At times, I think the government should drop the idea of a paper milling plant altogether.

There are major environmental issues with Panpaper. The idea of giving the company access to wood from government forests at subsidised rates does not make sense to me. Neither do I agree with the 25 per cent import duty production without which the company cannot operate profitably.

Why don’t we turn the company into a special economic zone. You have a good road network connection to the Northern Corridor. You have two international airports within good distance. In addition, you are very near a railway network.

Businesses targeting Uganda, Rwanda, Eastern Congo, Burundi and Southern Sudan will flock there.

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[SIZE=6]How vulture funds are complicating revival[/SIZE]

Even after spending billions of shillings in the attempts to revive the Webuye-based Pan African Paper Mills, the government still shares the power to decide the fate of the company almost equally with other long-term lenders.

By Jaindi Kisero

Posted Tuesday, October 22 2013

Even after spending billions of shillings in the attempts to revive the Webuye-based Pan African Paper Mills, the government still shares the power to decide the fate of the company almost equally with other long-term lenders.

Among the long-term lenders, the most intransigent have been a group of Singapore-based vulture funds who emerged long after Panpaper had been put under receivership.

Bang in the middle of the Panpaper’s revival plans, these funds popped out of the blue, after purchasing Panpaper’s debts in the international secondary debt market.

These faceless entities — basically different mutations of one group going by the names Noon Day Asset Management Asia or Farallon Capital Institutional Partners — are 11 in number.

According to statistics put out by receivers, they held 37 per cent of Panpaper’s debt as at March 2009. Naturally, the only thing they want from the receivership is more money. It will not matter to them whether this is achieved by selling the land and equipment in Webuye in parts.

What exactly are vulture funds? These are entities that purchase distressed debt on the secondary market at a price way below face value and later pop up seeking to recover the full amount of the debt through litigation.

The way vulture funds play their game is all- too-familiar: they purchase distressed debt at deep discounts, refuse to participate in any form of restructuring of the company and then start pursuing the full value of the debt plus interest by adopting hard ball negotiation tactics and chasing the money through court.

Sh6 billion debt

At what point did the vulture funds come into the picture?

Until recently, the list of Panpaper’s long-term lenders comprised of well-known players.

The paper trail shows that as at March 2009, the list of senior debt holders was as follows.

First, the International Finance Corporation, the World Bank’s commercial lending affiliate, was owed Sh2.5 billion.

The second big creditor was the German Bank, Deutsche Bank, which was owed Sh1.8 billion.

There were five other institutions in the category of long term lenders: the French entity, Propaco, with Sh380 million, PTA Bank with Sh 682 million, EADB with Sh317 million, KCB Bank, Sh112 million, and Development Bank of Kenya, Sh62 million.

In all, total long term loans as at March 2009 stood at Sh6 billion. It is important to note that in terms of clout and leverage, the long-term lenders have a great deal of power and influence. This is because they are the ones who hold collateral on land, buildings and all of the paper-making mills and equipment at the factory. The short-term lenders who put the company on receivership in the first place only held securities in floating assets.

Even after spending billions of shillings in the attempts to revive the Webuye-based Pan African Paper Mills, the government still shares the power to decide the fate of the company almost equally with other long-term lenders. Photo/FILE NATION MEDIA GROUP

In any case, they are no longer players because they sold their interests to the government.

Thus, it is impossible to re-open the factory sustainably without the co-operation of long-term lenders.

The complexion of long-term lenders has also changed.

Stalling negotiations

Immediately the company was put under receivership, IFC and Proparco, wrote to inform the government that they had written off all the money owed to them by Panpaper.

This left Deutsche Bank of Germany as the single largest long-term lender.

It did not take long before the vulture funds discovered that there was money to be made from Panpaper’s revival plans.

In April last year, Deutchse Bank informed the government that it had sold the debt to the Singapore-based vulture funds.

In retrospect, what made the Panpaper debt attractive to the vulture funds were the statements which government and political leaders were making about commitment to pump money into reviving Panpaper.

Throughout the time, the government was negotiating to settle with the short-term lenders, the vulture funds kept mum.

But it did not take long before the vulture funds started playing hard-ball tactics.

It is only recently that the receivers managed to convince them to agree to selling the company.

In the first place, they dragged their feet on appointing a trustee to present them in the negotiations. For many months, no business could be transacted on Panpaper.

This is because the long-term lenders are bound by a trust deed that requires that none of them can act unilaterally and that for a resolution to carry the day 75 per cent by value of debt must agree.

With more than 60 per cent of the senior debt in their hands, the vulture funds have been stalling negotiations.

Even after spending billions of shillings in the attempts to revive the Webuye-based Pan African Paper Mills, the government still shares the power to decide the fate of the company almost equally with other long-term lenders.

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Mimi apan dim eye. Sisi kama Wakenya tumenaswa ndani ya Ponzi scheme.

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This Rai dude is just interested in exploiting our forests.
If granted the forest licence, he will massacre our forests, recoup his profits then claim that rai paper is loss making and eventually liquidate it.
There no single roll of paper that is going to come from this factory.
Uhuru hajui hawa wahindi.


so gaidi kisiero, please tell us; 900million should have been the price of what? the name only??

Moi killed this factory. let them cut the trees and renovate the stadium. who needs paper in this digital age? this guy is creating jobs. thats all I can want for western people

sorry sir, but the rai group has been operating in kenya for longer than you’ve lived and if you do a little research you’ll find besides special timber products they also make plywoods, boards and ceiling cardboards in their raiply, timsales, comply factories in eldoret, nairobi and elburgon and nakuru. for over 20 years they’ve been in partnership with KFS to replant the forests they harvest with plantations in dundori, molo, timboroa area, londiani, maji mazuri, and elburgon forests. they not only harvest kfs forests but buy trees from farmers and employ about 5,000 kenyans. for someone of jaindi kisero’s calibre to dismiss them as timber merchants is to be economical with the truth…

hello @shocks …chicken coming home to roost…


this one you had called it, almost a year in advance


thanks @gashwin , watu kama huyu mzae wa SQNY ni wale wa kusomewa katiba. This negativity should be declared a national disaster!


the consumption of paper in the world is reducing but paper will outlive your grandson…

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toilet paper, and hemp paper. but not these others. plastic bags and newspapers need to be abandoned

the digital age has certainly reduced demand for office and school stationally but your comp will still come packaged in kraft paper…someone has to produce it…

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Rai group has been running raiplywoods(k) ltd for ages and have never seen forests being depleted …the reason is every time trees are felled new ones are planted


A limited number of guys know who Jaindi Kisero actually is… [SIZE=1](pengine @fiud mjinga couch p ndio nashuku anaweza jua hapa ktalk tu)[/SIZE]

The reason i tagged Shocks is because i alerted him about a plot to scandalise the panpaper transaction when that 1st article appeared in the nation. [SIZE=1]complete with extortion attempts[/SIZE]…

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And who is he?

Actually, I have no issues with your stories. You have your fun mimi siingilii. What I am trying to say ni ati Jaindi is not what people think he is. And Fiud masho may be among the few people who know what Jaindi Kisero is.