Money Markets
Mumias Sugar Company acting CEO Coutts Otolo speaks during a media
briefing on the company’s financial performance for the year ended June
30, 2014 in Nairobi on September 11. The results showed a total loss of
Sh2.7 billion. PHOTO | SALATON NJAU
By GERALD ANDAE
In Summary
Mumias Sugar Company is in talks with seven banks to restructure Sh5 billion of debt to free up cash flow as the miller seeks to return to profit.
Mumias CEO Coutts Otolo told a local TV station that the
debt rescheduling is part of cost-cutting measures, which include
retrenchment, aimed at turning around the ailing firm.
The miller is seeking to delay some of the debts
that were to mature early by a further three to four years. Its debt
stood at Sh5.2 billion in June, up from Sh2.4 billion in July 2012,
costing Mumias Sh601 million in financing expenses in the year to June.
Mr Otolo did not identify the lenders the company
is negotiating with, but sources at the firm say KCB Group and Eco Bank
are on the list. Mumias is also looking to reduce its 1, 900 workforce
in a staggered retirement plan amid opposition from the workers and
their union.
The company reported a wider loss before tax of
Sh2.7 billion in 2014, from Sh1.6 billion a year earlier, putting the
blame on weak sugar prices. It said in the year to the end of June,
sugar prices fell due to an influx of illegal imports and a shortage of
cane following a poor harvest.
Kenya has used high tariffs to protect sugar farmers but the policy has encouraged smuggling of cheaper sugar imports.
The firm’s shares closed at Sh2.15 on Thursday
after shedding a third of its value over the past three months, making
it the worst performing stock at the Nairobi bourse over the period.
Mumias has been struggling financially despite the fact that it is the
only miller in the country that has diversified into other revenue
streams such as power cogeneration and selling bottled water.
Diversification is one of the conditions that the
regional economic bloc Comesa wants Kenya to meet before it lifts the
safeguards the country enjoys against cheap sugar from member states. In
Kenya, for example, it costs $1,000 (Sh86,970) to produce a tonne of
sugar compared to $300 (Sh26,000) in Mauritius.
Mumias has been facing challenges meeting farmers’
dues, necessitating the intervention of the sugar directorate, which
extended a Sh300 million loan to pay farmers.
The sugar directorate advances loans to sugar
miller at a low interest rate of five per cent to be paid in five years,
while bank loans attract an interest of up to 12 per cent.
The price of sugar per tonne fell from Sh79,246 to
Sh62,432 in the review period, a 21.2 per cent decline. Low prices have
affected all the millers in the country, with the government blaming it
on increased contraband sweetener.
Mumias sales of electricity nearly halved to Sh230
million in the last year, with the company attributing it to reduced
power output and penalties imposed by Kenya Power as per their power
purchase agreement.
Electricity exported to the national grid dropped 21 per cent to 55,935 megawatt hour (MWh) blamed on poor quality of cane.
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