Kenya's wealthy Merali family acquires stake in pharmaceutical glass plant

The family of Naushad Merali, one of Kenya's most successful post-independence dealmakers, is taking a 50 percent interest in a pharmaceutical glass bottle plant planned for the Dongo Kundu Special Economic Zone in Mombasa County, marking its first substantial return to manufacturing since it abandoned tyre production.

The plant is costed at 330.36 million shillings, about $2.55 million at 129.44 shillings to the dollar, and will sit on six hectares inside the zone, according to filings at Kenya's Business Registration Service reported by Business Daily on Thursday, Sept. 10.

The developer is Milly SEZ Limited, an affiliate of Milly Glass Works Limited, the Mombasa manufacturer long associated with the family of Rashid Sajjad, a businessman and former Kanu-nominated member of parliament. The Meralis already hold 50 percent of Milly Glass Works.

The family's interest in the new plant runs through Zaigham Investments Limited, which holds 50 percent of Milly SEZ. Zaigham is 99.9 percent owned by Sameer Telkom Limited, in which Sameer Naushad Merali, the late businessman's son and chief executive of Sameer Group, holds a single ordinary share. Business Daily also describes Milly Glass Works as the full owner of Milly SEZ, a description that does not sit easily alongside the Zaigham holding. Neither company has published a shareholders' agreement setting out how the two interests fit together.

What the plant will make

The facility will produce Type III amber pharmaceutical glass, the industry designation for soda-lime glass used in medicine containers, coloured to shield contents from light. The bottles hold liquids, tablets, capsules, vaccines and injectable preparations.

That is a narrower and more demanding product than the bottles Milly already makes for beverages. Pharmaceutical glass has to meet hydrolytic resistance standards, because glass that leaches into a drug alters it, and the regulatory approval attached to each container type makes customers slow to switch suppliers once qualified. The barrier to entry is also what protects the margin.

East and Central Africa produces very little of it. Kenya imports most of the pharmaceutical glass its drugmakers use, largely from India and China, which is the gap the project is aimed at. The Environmental and Social Impact Assessment filed for the plant sets out an export-oriented model, citing proximity to the Port of Mombasa, the Standard Gauge Railway, Moi International Airport and the surrounding road network.

The assessment puts annual output at 290,000 tonnes of glass bottles. That figure is difficult to reconcile with the stated investment, since container glass furnaces of that scale typically cost tens of millions of dollars rather than a few million, and neither Milly nor the Meralis have published a phasing plan that would explain the gap.

Why the family is back in a factory

Naushad Merali built his fortune on a particular method, buying companies that were losing money, turning them around and selling them on. Forbes ranked him the third-wealthiest person in Kenya and 48th in Africa in 2015, with a net worth of $370 million. He died in July 2021.

The exits made the money. He sold out of Swift Global, Kenya Data Networks, KenCell and Equatorial Commercial Bank, each time collecting billions of shillings. The approach drew criticism when buyers who followed him struggled to make the same assets work.

Manufacturing was the part that did not hold. The family wound down tyre production at Sameer Africa, unable to compete with imports from China and India on cost, and converted the business into what is effectively a property company. Sameer Business Park on Mombasa Road and Sameer Industrial Park became the earnings engine, with land sales covering what the factory could not.

The family still controls roughly 65 percent of the agricultural producer Sasini, about 74 percent of Sameer Africa on the Nairobi Securities Exchange, and holds interests across real estate, construction, transport, energy, industrial parks, telecommunications and insurance.

Buying into pharmaceutical glass reverses the direction of travel, and does so on terms that differ from the tyre business in one important respect. Tyres competed head-on with Asian imports on price. Pharmaceutical glass competes on regulatory qualification, proximity to the customer and the cost of shipping something heavy and fragile across an ocean.

The zone is doing some of the work

Dongo Kundu is Kenya's flagship special economic zone, developed on the mainland south of Mombasa alongside the bypass and bridge project connecting it to the port. Companies operating inside a Kenyan SEZ receive tax and customs concessions intended to attract export manufacturing, which changes the arithmetic on a plant that would otherwise struggle against imports.

The government has been pushing local pharmaceutical production since the pandemic exposed how much of the region's medicine supply arrives from outside it. Packaging is the least glamorous part of that chain and one of the hardest to substitute, because it is bulky, low-value by weight and expensive to move.

Milly Glass Works says the move into specialised packaging reflects demand growth in the regional pharmaceutical sector against limited local capacity.

Neither the Meralis nor Milly has said when construction will begin, how the plant will be financed, or what the family paid for its interest.