Kenya: Bitter Tale of Mumias Sugar Company's Revival Bid

The revival of struggling Mumias Sugar Company faces fresh challenges, following stiff scrutiny and corporate wars for the control of the miller, amid a leasing process facing headwinds.

Last week, the Senate's Agriculture committee put on hold plans to lease out the multibillion-shilling miller through a private treaty, ordering the receiver manager, Ponangipalli Venkata Ramana (PVR) Rao, to publicly advertise bidding for the lease within 14 days.

This was after a series of protests from residents and other players orchestrated by political and corporate players, as cards were reportedly played behind the scenes in the process of choosing an investor that would operationalise the company after more than five years of underperformance.

Senators took Mr PVR Rao to task to explain why he was leasing the miller through a private treaty, with the legislators questioning the profiles of companies that sent bids. They also demanded that he disclose details of the lease agreement for scrutiny to avoid a situation where farmers could be shortchanged.

"We want to know how long the lease period runs so that we can keep the investor that takes over in check. We also want to know how farmers will be paid, where cane will be weighed and other issues," said Kakamega senator Cleopas Malala.

All this happening despite the fact that leasing the miller is the only viable option for its revival, at least according to the receiver manager, who cites court orders blocking any sale of the miller's assets, its current balance sheet and inability by secured lenders to finance its operationalisation as the major stumbling block to the revival of the once biggest miller in the country.

Read: Senate wants Mumias Sugar to publicise lease dealings

"The Receiver Manager took the decision to lease the assets after finding it impossible to run the operations without injecting substantial funds towards revival of the operations, which has its own challenges due to the non-cooperation of other secured lenders and challenges faced from several court cases with the risk of uncertain outcome," Mr Rao said in a written statement to the committee.

In its current state, Mr Rao said, the miller is unlikely to find a buyer even if it were to be sold, due to its eroded shares, with a shareholders' value of negative Sh14.4 billion by 2018.

His attempts to run ethanol manufacturing operations since last year failed, after the company faced molasses shortages, as well as high transportation costs. The operations were stopped in March this year.

"The only feasible option available to the receiver is to lease the assets to ensure quick revival of the operations and immediate employment opportunities within the community and to commence recoveries for the secured lenders and other stakeholders as per the law," Mr Rao responded in his statement.

But the leasing process which started early last year has been shrouded in mystery and claims of a particular investor being favoured, as the receiver manager ran an infamous private treaty leasing process that has now attracted huge criticism and sent him back to square one.

The turn of events is certain to delay revival of the miller, as its liabilities continue to accumulate due to increasing interest rates and penalties on loans it owes lenders.

"The country is unhappy with the way the bidding process is being conducted. There are concerns that what you are doing is not transparent. It is very opaque. Within 14 days, the receiver manager should publicly advertise for the lease and submit a technical evaluation report before the Senate," the committee chairman Njeru Ndwiga ruled.

Mr Rao last week indicated that he had chosen to run bids through a private treaty since public advertisement was expensive and time-wasting, a decision heavily criticised by the public and senators. He also said the leasing process had not been concluded.

"We have not identified any particular investor who can operationalise the lease at the moment. We have the bids but we have not finalised evaluation yet," Mr Rao told the legislators.

The private treaty bidding process attracted bids from eight companies -- Catalysis Group (Russia), Sarrai Group (Uganda), Kruman Associates (France), Kibos Sugar, Devki Group, Premier JV (India), Third Gate Capital Management and Godavari Enterprises (India).

Another key concern by senators was the lease period, which the receiver manager said would range between 15 and 20 years.

"Even if it is under receivership, Mumias does not operate autonomously. The company's current state is causing suffering to the people of Kakamega," said Mr Malala.

Currently, no operations are going on at the miller after the receiver manager stopped distillery operations at the Ethanol Plant in March, except the regular cleaning and upkeep of the machinery and other assets.

Mumias started falling to its knees in 2015 having drained billions of taxpayers' money, as the management used the funds to pay for past losses, rather than invest in revenue generating activities.

An asset evaluation conducted by Centenary Valuers Ltd in November 2019 estimated the market value for Mumias assets was Sh18.4 billion, including land (Sh3.8 billion), plant and machinery (9.25 billion), and loose assets such as vehicles (Sh243 million), among others.

"We note that the value of Mumias's assets may have deteriorated further from June 2018. Similarly, the liabilities of Mumias may have increased since then mainly due to additional interest and penalties on loan payment default, tax arrears. It is clear that even in an asset sale, Mumias may not be able to settle all its creditors," the receiver manager reported.

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