Industry

Investor interest broadens sugar factories sale options

Sugar-port

Unloading sugar. Debate has been rife over the possible write-offs in the sector. Photo/FILE

Kenya could tap Sh55 billion in new capital inflows from privatization of sugar firms ahead of the 2012 opening of the domestic market to foreign producers, industry insiders said, pointing to the high level of investment that is needed to make local millers competitive.

Kenya Sugar Board (KSB) says buyers of the country’s five government-owned factories will have to spend billions of shillings in expansion, modernization and research to prepare the firms for the onslaught from foreign producers in a fully liberalized market.

But Rosemary Mkok, the sugar board CEO, said the amount of money the government will earn from the sale will depend on the Cabinet’s choice of the method of privatization.

“Strategic partnerships will definitely yield different results from an initial public offering,” she said.

Investors from the world’s largest sugar producing countries, Brazil and India, have so far made the most inquiries — signalling the high level competition that local players such as Mumias Sugar are facing.

In the past two weeks alone two delegations from India and Mauritius have visited Kenya seeking opportunities in the local industry.

The visits came just days before a Saudi group Midroc al-Amoudi announced plans to construct a sugar refinery in Yemen targeting the horn of Africa market that is to be fully liberalized in 2012.

Mr Ahmed Bamunif, Aden Sugar Refinery project’s executive director said construction of the plant will start in January next year.

“It’s a $240 million investment that should start production by the end of 2011,” he said. “We will start at one million tonnes per year and we will increase it to 1.5 million tonnes per year may be in 2012.”

Midroc Al-Amoudi is a private investment group owned by Ethiopia born Saudi billionaire Mohammed al-Amoudi.

Mr Al-Amoudi also owns Corral Petroleum Holdings AB, which is Swedish-registered and controlled by him and is the largest shareholder in Morocco’s only oil refinery Samir.

On the local front, consultants are finalising an analysis report on the sale options for the five State owned millers earmarked for sale.

The report is expected to be presented to the Privatisation Commission by end month to compliment a detailed report that would eventually be presented to Cabinet for action before investors are invited to bid.

A due-diligence report on the five millers listed for sale; Miwani, Muhoroni, Chemelil, Sony and Nzoia, has since been concluded and handed over to the Commission.

“Work is ongoing and we expect to share the progress with stakeholders at a meeting in Kisumu on October, 23, 2009,” Privatisation Commission CEO Mr Solomon Kitungu told Business Daily.

Ms Mkok said a report to be presented to Cabinet could be ready in the next two months even as the interest grew among investors.

“We have so far had a very high number of enquiries and more are still coming but we have asked investors to hold on until our advisors concluded their due diligence and gave a direction on the sale options for the various firms,” She said.

And even as consultants worked on the report on the sale options, sources at Ernst and Young, the transaction advisor in the sale of the sugar firms, however said strategic partnership would be the preferred option in the sale of the factories owing to the poor financial run by most State-run millers.

“Regulations governing IPOs require that firms should be profitable at least for three years over the five years to the placement of such offers,” a source said.

But even as players inched closer to sale, Ms Mkok said a Sh58 billion debt portfolio hanging over the industry still posed a major challenge even as the board and the Privatisation Commission worked towards preparing the firms for sale.

Debate has been rife over the possible write-off debts in the sugar industry will some analysts saying that Cabinet’s delayed action may be informed by the fact that such action required an approval by Parliament which the Treasury may find difficult to convince since most of the debts may have resulted out of misappropriation by past managers at the State-run firms.

“We hope Cabinet will give a direction on the debts because we want to offer the investors an attractive package through a serious deal and avoid bad deals like what happened in 2007,” she told Business Daily in reference to a botched sale of two millers in western Kenya.

In flopped attempt to sell Miwani and Muhoroni sugar companies in late 2007, preliminary results of the evaluation process had shown that Country Logistics -- a consortium led by Kenana Sugar Company of Sudan had taken the pole position in the battle for Miwani Sugar Company after it beat four other competitors on both the technical and financial scores.

In the technical bids for Miwani that went into receivership in 2001, the Kenana-led consortium scored 50 points beating local rivals such Mumias Sugar Company and Spectre International.

The consortium also placed the top financial bid of Sh2.3 billion against a reserve price of Sh2 billion that was set by the KSB and the joint receivers.

Another group of investors comprising India’s industrial giant -- Indian Sugar and General Engineering Corporation (ISGEC) and government-backed South African firm Industrial Development Corporation of (IDC) also got a head start in the race for Muhoroni Sugar Company.

Reserve price

Bidding under the Kibos Sugar umbrella, the consortium scored 46 points to tie with their only rival Panafrican Millers Limited on the technical front but broke away in the financial front where it placed a Sh3 billion bid against their rival’s Sh1.7 billion.

The Sh3 billion bid was in tandem with the reserve price set by the joint receiver managers and KSB.

The sell-off was however later shelved by Treasury amid claims that government and public interest was “not sufficiently represented”.

“We don’t want a repeat of such an incident that could jeopardise our relations with investors. We want time to first put our house in order before inviting bids from them at the right time,” Ms Mkok said hinting that the sugar millers in the Nyando sugar belt would be sold off as an integrated bloc.

A consortium affected by the flopped sale, Country Logistics, said yesterday it would participate in the fresh process once the bids were invited but urged for transparency.

“We are still keen in having a stake in the sugar industry and look forward to participating in the new process as long as there is an assurance that funny dealings will not happen this time round,” Mr Rumi Singh, a representative of the Kenana-led group told Business Daily.