State picks advisors for planned sale of New KCC

The government has picked transaction advisers for the privatisation of giant milk processor New KCC, opening a window for farmers to gain a foothold in the company’s management.

Standard Investment Bank heads the consortium of lead transaction advisors that also includes Deloitte Consulting, Mereka & Company Advocates, Mboya and Wangong’u Advocates and Regent Valuers International Limited.

SIB beat two other transaction advisory consortia led by Dyer and Blair Investment Bank and Commercial Bank of Africa (CBA) Capital who submitted their bids to the Privatisation Commission in January.

Sector crisis

Dairy farmers— KCC’s principal suppliers —are expected to get a special consideration during the initial public share offering, whose details the advisors must craft.

The sale of KCC begins amidst a dairy sector crisis that has seen thousands of litres of fresh milk go to waste.

Favourable weather conditions have seen Kenya’s milk output rise by 30 per cent from 3.9 billion litres last year, rendering the processors incapable of handling the supply.

As the processing crisis deepened in recent weeks, farmers have intensified calls for government intervention on capacity expansion even as others insist on quick privatisation of KCC, hoping to fix what they see as management shortcomings linked to state ownership.

The government has responded with the revival of a plan crafted two years ago to build a Sh2 billion strategic milk reserve, under a scheme in which Treasury will finance KCC’s conversion of surplus milk into powder and long life UHT form for storage.

That move is now being backed up by a fast-tracked privatisation process that Mr Solomon Kitungu, the chief executive of the Privatisation Commission, says may be completed in 12 months. “We take about 10 to 14 months if there are no major hurdles coming out of the due diligence exercise,” he said.

Mr James Wangunyu, the managing director of Standard Investment Bank that is leading the advisory team, said: “It is possible to complete the sale by December.”

The transaction team is expected to put a number of options before the government including a direct sale to strategic investors, an initial public offering (IPO) through the Nairobi Stock Exchange, a private sale of shares to a select group of investors or a combination of the options.

Milk farmers — a good number of who KCC owes an estimated Sh1.2 billion — are rooting for a private placement plan that will give them first priority to buy into the company.

Sizeable presence

But analysts are expecting the government to retain a sizeable presence in the company that will give it management control for strategic reasons.

To many Kenyans, KCC is a buyer-of-last-resort for farmers as well as a pivotal player in the country’s ability to meet its strategic food reserve needs.

The transaction advisors are however expected to craft a sale plan that will bring on board shareholders with big financial muscle to inject into the operation new capital and management expertise required to transform the firm into a strong player in the export market.

The success of the new ownership plan is tightly linked to how the transaction advisors choose to handle the competing interests.

Finance minister Uhuru Kenyatta has promised to table before the Cabinet KCC’s plea for between Sh300 million and Sh2 billion capacity-building kitty— a request which may get approval either as part of the anticipated supplementary budget or for inclusion in the annual national budget in June.

Mr Kitungu, however, reckons that any state intervention to boost milk processing should have minimal effect on the sale process as transaction advisors will only need to factor in any cash injections by Treasury in their preparation of the final prospectus report.

The original Kenya Cooperative Creameries was formed under the Cooperative Societies Ordinance Act of 1931 but collapsed in the 1990s after successive years of mismanagement and looting by public officials.

New KCC was formed in 2003 after the government paid Sh547 million to repossess the firm from a group of private investors, who had discreetly acquired it for Sh400 million and renamed it KCC 2000.

The corporation’s chairman, Mr Matu Wamae, estimates that KCC’s assets are in excess of Sh7 billion.

Last year the company’s pre-tax profits clocked half a billion shillings from a turnover of Sh7 billion, marking what is largely seen as a successful six-year turnaround from a dark past.

This outcome has however not spared the management from accusations of shortsightedness leading to the current capacity constraints.

New KCC runs 11 cooling plants, 11 factories and 12 sale depots countrywide.

About 13 parastatals are lined up for sale this year.

These include the Kenya Pipeline Company, Chemelil Sugar Company, Nzoia Sugar Company, Miwani Sugar Company and Consolidated Bank.

Others are the Kenya Meat Commission, Kenya Wine Agencies Ltd, National Bank of Kenya, Development Bank of Kenya, Muhoroni Sugar Company, Sony Sugar Company the Kenya Tourism Development Authority and some hotels.

Treasury has also indicated that it could cede a further stake in power generating company KenGen.

A public-private-partnership venture already underway is also expected to revamp operations of the Kenya Ports Authority.