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The East African : May 17th 2015
MONEY AND EQUITY MARKETS MAY 16-22,2015 MAKING FIRMS PROFITABLE BY SCOLA KAMAU Special Correspondent I nvestors across East Africa will own a stake in five Kenya government-owned sugar companies to be privatised over the next 12 months. The Privatisation Commis- sion announced on Friday, May 5, that the five sugar companies — Nzoia, South Nyanza, Chemelil, Muhoroni and Miwani — will be sold in phases to strategic investors and outgrower companies through an initial public offering. Under Kenyan law, East Af- rican investors are regarded as local citizens and eligible to buy shares during the IPO. The privatisation also gives East African companies with a track record in managing sugar companies profitably a chance to invest as strategic investors. Under the privatisation strate- gy approved by the National Assembly on April 29, 51 per cent of the shares in each company will be sold to a strategic investor and 24 per cent to outgrower companies and employees over a three year period at the same price as that offered by the institutional investor. The other 25 per cent will be sold to the public at a later date through an initial public offering in which 6 per cent of the shares will be reserved for individual farmers. “The state may decide to sell the remaining 25 per cent through an initial public offering or any other method determined at the time of sale but six per cent shareholding will be reserved for the farmers,” said the chairman of the Privatisation Commission, Henry Obwocha. The sale of the sugar firms is part of reforms aimed at making Kenya’s sugar industry competitive and is one of the conditions set by Common Market for Eastern and Southern Africa (Comesa) to extend the one year safeguard granted this year. Mr Obwocha said that before the sale, the government would clear excess debt and convert the rest into equity in order to turn the sugar companies into financially viable concerns that can access cane as per their optimal capacity. Analysts said the sale could attract international and regional companies who have been eyeing Kenya’s sugar industry. “By targeting strategic partners with a track record of managing profitable companies, the chances are higher of finding partners outside Kenya, who would be in a position to turn around the performance of the companies. The advertisement does not Kenya to sell off five sugar firms to regional African investors A st≥ategic company will be o≠e≥ed 51 pe≥ cent of the sha≥es in each company and 24 pe≥ cent to outg≥owe≥ companies and employees Trucks ferrying cane to the Nzoia sugar factory. Nzoia is one of the sugar firms to be privatised Picture: File to the Fisheries and Food Authority, which is enough for the market, although there is an expected deficit of 300,000 tonnes. No sugar is being imported currently. “We need to speed up the process and budget for the one year Comesa gave; the second year is conditional and a delay in the actual privitisation is a risky move,” said Alfred Busolo, Agriculture, the managing director Fisheries and Food Authority. The sale of the 51 per cent stake in the sugar millers to strategic investors received approval from a parliamentary committee in December, paving the way for the privatisation commission to start the process. The commission will within six weeks roll out a programme for the consultation process after which the transaction implementation is expected to take $1.1b POOR PERFORMANCE Mumias Sugar, Kenya’s leading sugar producer with 20 per cent government shareholding, is operating at half of its capacity due to a cane shortage. The firm, privatised in 2001, is yet to repaydebts owed to farmers. Mumias stock was trading at Ksh2 ($0.02) per share by Friday April 15 from an all-time high of Ksh60 ($0.6) per share in 2006, handing investors a 97 per cent loss. The company has been riddled with fraud, corruption and embezzlement posting losses for two consecutive years. Mumias reported a 2014 pretax loss of Ksh3.4 billion ($38 million), compared with a Ksh2.2 billion ($22 million) shilling loss the previous year, that it blamed on weaker sugar prices. The government this year reached a Ksh5 billion ($54.9 million) deal with banks to help Mumias implement a reorganisation that includes job cuts. A rights issue to raise Ksh4billion ($43.9 million) is planned but its success hangs in the balance in view of dented investor confidence and management challenges. limit the interest to local companies,” said Einstein Kihanda, chief investment officer at ICEA Asset Management, adding that companies from Sudan, Malawi, Mauritius and Zambia could be interested. Previously, Kenana Sugar Company, the leading sugar manufacturing company in Sudan through its branch — Kenana Engineering and Technical Services, had expressed an interest in tenders for the con- struction of refineries in Kenya. Two Mauritius based com- panies have acquired stakes in Kenyan firms. A Mauritiusbased investment firm, Alteo which is listed on the Mauritius Stock Exchange is to acquire 51 per cent of Transmara Sugar Company Ltd, subject to regulatory approval. Another Mauritian sugar manufacturer, Omnicare, owns 25 per cent of Kwale International Sugar Company Ltd. According to Mr Kihanda, the privatisation is meant to attract financially stable companies that will not only make the sector viable but also lead in financing debts. The five sugar companies owe the government, banks, suppliers and the Kenya Sugar Board a total of Ksh100 billion ($1.1 billion), a debt cane farmers blame on mismanagement and competition from illegally imported sugar. Kenya currently has a stock of 17,000 tonnes of sugar according 53 The amount of money that the sugar firms owe farmers between nine and 12 months. Other conditions that Comesa gave to Kenya include research into new early maturing and high sucrose content sugarcane varieties and adopting them, paying farmers on the basis of sucrose content instead of cane weight, maintaining the safeguard as a tariff rate quota with the quota increasing while the above quota tariff falls until it reaches 0 per cent; and maintaining and providing infrastructure, including roads and bridges, in the sugar growing areas. The proceeds of the 51 per cent of the shares will fund the rehabilitation and modernisation needs of the sugar companies, the Privitisation Commission said. “The privatisation of the sug- ar millers is long overdue; there should be a complete refurbishment of the companies if they are to win investors’ confidence. It will not be easy to persuade investors to buy a stake in the already ailing mills,” said Vimal Shah of the Kenya Private Sector Alliance (Kepsa) in a previous interview.
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