Treasury says no Mumias bailout without shakeup

The Treasury has ruled out a bailout for troubled sugar vendor Mumias Sugar Company (MSC) until its management presents a credible turnaround blueprint.

Treasury secretary Henry Rotich said Wednesday the management of the listed sugar miller needs to present and discuss its stabilisation and reform plan to the government before consideration of the Sh2.3 billion bailout request.

Mumias is 20 per cent owned by the State and faces tough times surviving with the lapsing of Common Markets for Eastern and Southern Africa quantitative import restrictions next month.

READ: Showdown looms over Comesa sugar imports

The largest miller, until its gross mismanagement seen as likeliest State-owned survivor of the liberalised import regime, was before privatisation almost fully-owned by the government.

“We have been having discussions with Mumias. However, we cannot offer support without something clear on the table showing what the management is doing to improve the company and correct the challenges they have had in the past,” said Mr Rotich.

The sugar miller has been in serious trouble recently that saw its full-year losses for the 2014 escalate to Sh2.7 billion from Sh1.6 billion in 2013.

Speaking on the sidelines of the listing ceremony for Uchumi Supermarkets rights shares at the NSE, Mr Rotich confirmed that preliminary discussions have been held between the company and the government over a possible bailout.

“There has to be a very clear stabilisation and reform plan which covers the short, medium and long term and it is through such a plan that we can think of how we can come in to support the company,” said the minister.

Uchumi was incidentally the first fairly successful turnaround case spearheaded by the government with the help of financiers and suppliers.

Mumias Sugar chairman Dan Ameyo Wednesday said other shareholders besides the Treasury would be considered as potential sources of capital injection.

“The position is that the company needs assistance and shareholders must come in to do so, among them the government,” said Mr Ameyo.

Speaking last week, Mumias managing director Coutts Otolo said the company remains hopeful of the Sh2.3 billion lifeline. He reported it has since returned to near-full processing capacity following a two month shutdown.

READ: Mumias Sugar to reopen factory after two months

He told NTV the company is talking with seven banks it owes about Sh6.5 billion to work on a restructuring plan for the debt, which will involve seeking a deferral of payments for at least one year and stretching the repayment period.

One of the major challenges facing the miller in the past six months was shortage of sugar cane arising from poaching and farmers’ frustration.

Management woes, fraud and illegal import of sugar reportedly cost some senior staff at the company their jobs last year.

Financial experts had pointed out that the firm would most likely need a capital injection from its majority shareholders in order to address its problems, with delays in commitment to a bailout causing negative sentiments in the market.

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This has seriously eroded the value of the firm. Its stock has lost 43 per cent in value over the past one year to Sh1.95, valuing the miller at just Sh2.9 billion.

The share was costing Sh49.50 a unit the last time the Treasury offloaded its stake in the market.