A West Kenya Sugar truck in Kakamega town transports cane to the miller’s factory. The government plans to privatise five sugar millers. Isaac Wale
Cane farmers and employees of State-owned sugar companies will have three years to buy shares in the millers after they are privatised.
Farmers and employees will be eligible to buy shares in a process that resembles an employee stock ownership plan according to Sessional Paper 12 covering the write off of government debt owed by the five sugar millers.
The paper presented by the Treasury says a trust for outgrowers and employees will be formed to facilitate purchasing of 30 per cent of Nzoia, Miwani, Muhoroni, Chemelil and South Nyanza sugar companies by the two groups.
Growers will take 24 per cent of the stake with the balance going to employees. Strategic partners are expected to take 51 per cent in the plants. Another 25 per cent will be reserved for the government. The trust has been proposed on realisation that farmers and employees may not be able to buy all shares on offer during the privatisation.
Warehousing the stake thorough the investment vehicle would allow the stakeholders enough time for participation.
“In this respect, a moratorium of three years is recommended during which the Trust will be able to buy the shares at the price at which they were sold to the strategic partner.
“After the moratorium period, the shares will be sold to the Trust at the market price that will reflect the market valuation of the shares of the rehabilitated companies,” says the sessional paper.
Analysts said that reserving a shareholding, especially for outgrowers, would create stability in sugarcane sourcing.
Sugar milling in western Kenya has been debilitated by poor demarcation of factory operation zones, resulting in cane poaching.
Johnson Nderi, a research analyst at Suntra Investment Bank, said that the move to sell a stake of the millers to farmers would act as an incentive for them to stop sugarcane poaching. “How else do you win loyalty of your farmers?” posed Mr Nderi.
This is the second time farmers and employees are getting a chance to own stake in a sugar processor. The first time was during the Mumias Sugar initial public offering of 2001.
However, most farmers ended up selling off their allocation to unscrupulous brokers at a throwaway price. Some analysts though think the chances of the same scenario replaying are remote this time round.
“People are more knowledgeable now than at the time and then a market hardly existed,” said Francis Mwangi, a research analyst at Standard Investment Bank.
Farmers and employees can still get additional shares from the government’s portion subject to a six per cent cap.
Meanwhile, Kenya is set to be subjected to full Common Market for Eastern and Southern Africa (Comesa) competition after the expiry of the quantitative import quarters in July 2014, making the factories less attractive to farmers and other investors.
The Sugar Act, the law that governs the industry, will however have to be amended to allow for a strategic investor to own at least 51 per cent or to become a majority shareholder.
The law says that outgrowers should own a 51 per cent stake in a privatised miller and have a majority representation on the board, a clause which is unattractive to investors.
“Investors are unlikely to invest the amount of resources required in the sugar companies unless they have control over the operational management decisions,” says the sessional paper.
The government plans to privatise the five millers and part of the deal is to write off Sh33.8 billion of the Sh41.8 billion that the plants owe the State.
