Abraaj-Held Coffee Chain Seeks Growth Out of Kenya Heartland

(Bloomberg) -- An Abraaj Holdings-owned chain of Kenyan coffee shops is shrugging off its parent’s funding woes to plot an expansion out of East Africa and possibly as far as China.

Java House, which has almost 60 outlets across Kenya, Uganda and Rwanda, plans to boost that to as many as 200 over the next four years, Chief Executive Officer Paul Smith said in an interview in Nairobi, the Kenyan capital. The company has set aside almost 1 billion shillings ($9.9 million) to pay for the acquisition of businesses and real estate, he said, and is targeting new markets such as Nigeria.

The growth plans come as Dubai-based private equity firm Abraaj undergoes a court-supervised restructuring, triggered after some investors called for an investigation of alleged mismanagement of money. Abraaj is seeking to sell funds, and has offers from Cerberus Capital Management LP and Colony Capital Inc., people familiar with the matter said this week. Java House is part of Abraaj Africa Fund III, which has $990 million in assets.

The crisis “hasn’t in any way affected us,” Smith said. “The fund that controls Java is very well managed by the team here. There are people talking to Abraaj about taking over certain areas, but at the moment it’s business as usual.”

Abraaj bought its holding in Java from Emerging Capital Partners LLC last year, and had been expected to hold the investment for five years, Smith said. An exit could be through a private investor or a listing, he said.

Java House will look for potential franchisees in countries including Ghana and South Africa on top of the store-opening spree. It’s also been approached to operate stores for international brands on the continent, he said, declining to name the companies.

But Java’s most ambitious target is China, and the company is in discussions with a potential investor about exporting coffee there and eventually opening stores, Smith said. Starbucks Corp. is targeting the world’s second-largest economy as a major growth market and opens a new store in the country every 15 hours.

“China would be a lovely dream,” he said. “We are seriously having a look at it.”

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