CfC consortium signs Sh10.5bn loan to sugar miller
Sugarcane is harvested on a farm in Bungoma South district last year. Kenya has a total installed factory crushing capacity of 30,109 tonnes of cane- per- day. FILE
What you need to know:
Deal plugs funding gap that the firm needed for its Sh17.5 billion project.
A consortium of lenders led by CfC Stanbic Bank has secured a Sh10.5 billion ($120 million) loan deal for the Kwale International Sugar Company Limited (Kiscol) to finance construction of a milling, distillery and power plants.
The deal plugs the funding gap that Kiscol needed for its $200 million (Sh17.5 billion) project.
CfC Stanbic Kenya was the largest contributor at $22.5 million (Sh1.96 billion), followed by PTA Bank $20 million (Sh1.75 billion), Standard Bank (Mauritius) $15 million (Sh1.3 billion) and the other $62.5 million (Sh5.5 billion) was sourced from a consortium of Kenyan and Mauritian banks.
Transaction advisors said the funding, wholly secured in August, will also make it easier for other companies in the region that plan to raise money to access international markets.
“This is an innovative project financing for the Kenyan market involving a wide range of regional lenders, which bodes well for the project finance market in East Africa,” said Herbert Smith Freehills finance partner Martin Kavanagh in a statement.
Herbert Smith Freehills was the legal advisor on the multi-billion shilling project.
The investment comes at a time when the sugar industry is facing hard times due to rampant cane poaching, competition from cheaper sugar imports, use of obsolete technology for the state-owned millers, which are also saddled by heavy debt.
Analysts however say that Kiscol can weather these problems due to its physical location, growing its own cane and bringing in a strategic investor, Omnicane.
“The main problem with millers is that they do not have a guaranteed supply of cane and that is why there is poaching industry,” said Francis Mwangi, head of research at Standard Investment Bank.
The syndicated loan is split between a 10-year $100 million (Sh8.7 billion) loan and a 12-year $20 million (Sh1.75 billion) debt but the company did not indicate at what interest rates the loans were secured at.
The equity per cent stake in the project worth $80 million (Sh7 billion) is jointly owned by the Pabari family and Omnicane, a sugar miller that is listed on the Stock Exchange of Mauritius that has a 25 per cent stake.
On completion, expected in mid-2014, the factory will have the capacity to churn out 3,000 tonnes of cane per day.
An 18 megawatt cogeneration power plant and a 30,000 litre ethanol plant will also be ready by then. The project is similar to Mumias Sugar which has a 26 megawatt power plant and an ethanol plant.
A coverage note on Mumias Sugar by Sterling Capital says that poaching has cost Kenya’s biggest miller, Mumias Sugar, Sh7 billion in the last two years and the problem does not look like it will end soon.
Cane poaching
“Mumias has been a victim of cane poaching losing close to Sh7 billion in the last two years. As the number of licensed millers in the Western Kenya sugar belt increase, we expect this situation to be a major drawback to the firm’s topline,” says Sterling’s note.
Mr Mwangi said that the Kiscol is growing its own sugar cane and being located in an area where there are no other players eliminates the threat of poaching.
Kiscol has 20,000 acres in the coastal region, which better suited for cane growing due to the shorter maturity period over cane grown in the western Kenya sugar belt. The project is expected to be completed by mid-2014 and analysts say that it will catalyse competition in the industry.
“We expect the entry of the giant Mauritian sugar Miller, Omnicane, to the Kenya Sugar industry to intensify competition in the market,” said the coverage note.
Kenya has a total installed factory crushing capacity of 30,109 tonnes of cane- per- day which is slightly above Kiscol’s capacity on completion. Omnicane’s experience is also expected to benefit Kiscol.
“The industry still remains viable and indicates high opportunity within the region.
‘‘Adoption of new technology signpost competitive advantage of which I believe Omnicane are working towards adopting the same,” said Eric Munywoki, a research analyst ay Old Mutual Securities.
