Sugar miller Mumias #ticker:MSC has been left in a financial tight spot after three commercial banks recalled Sh2.6 billion loans they had disbursed to the insolvent firm, testing efforts to rescue it from liquidation.
Ecobank Kenya, KCB #ticker:KCB and Commercial Bank of Africa have demanded to be paid their Sh1.7 billion, Sh480.1 million and Sh364.5 million loans respectively, breaking ranks with other lenders, including French investment fund Proparco, who are owed Sh9 billion.
Mumias, which disclosed its debt problems in the latest annual report, says it is betting on government support to restructure the liabilities even as banks continue to charge interest penalties.
The company is in default on principal and loan repayments.
"With the exception of Proparco, Kenya Sugar Board and the National Treasury, all the other lenders have issued demand letters requiring immediate payment of all sums outstanding,” Mumias says in the report.
“The company, together with anchor shareholder, the Government of Kenya, have initiated a structured process to discuss with the lenders with a view to restructuring the debt liabilities.”
The government, which owns a 20 per cent stake in Mumias, has already bailed out the company to the tune of Sh3.5 billion but this has since been consumed, with no improvement in its earnings or capital position.
Taxpayers will likely sink in more billions to rescue the miller if the government remains averse to shutting it down.
Mumias’ short-term liabilities exceeded its current assets by Sh15.2 billion as of June 2017, signalling a liquidity crisis even as its total book value continues to be eroded by successive losses.
The miller’s net worth shrunk to a record low of Sh756.5 million in the review period, half its market capitalisation of Sh1.5 billion on the Nairobi Securities Exchange (NSE) where it trades at a speculative price of Sh1 per share.
“If the above strategies are not fully implemented, there would be a material uncertainty as to the company’s ability to continue as a going concern and it may, therefore, be unable to realise its assets and discharge its liabilities in the normal course of business,” Mumias says in reference to its rescue plans, including receipt of more bailout money.
“The directors will initiate discussions with stakeholders to seek further financial support to implement its turnaround strategy,” the company says, adding that it has received a letter of support from the government.
Value for money
It remains to be seen whether taxpayers will get value for money in saving Mumias, with the government having shown willingness to take more risk through disbursement of funds to the miller on loose terms.
Mumias, for instance, says it received Sh839.2 million from the government in the year ended June 2017 before a definition of the cash infusion or its terms were documented.
This forced the miller to classify the money as long-term debt, choosing for itself the least burdensome option.
“The terms of the funds received are still under negotiations, and have been presented as non-current borrowings as at June 30, 2017,” the miller says.
Mumias has pledged most of its assets to various lenders, including 10,900 acres of leasehold land.
Ecobank, among other banks, has a claim on the miller’s ethanol plant, its receivables and inventory.
KCB’s loan is secured by part of the company’s land in Mumias while Proparco has a claim on the company’s power generation plant.
The miller reported a larger net loss of Sh6.7 billion in the year ended June compared to Sh4.7 billion the year before as sales collapsed to Sh2 billion from Sh6.2 bilion.
The loss was aggravated by higher costs, including legal fees which more than doubled to Sh482.3 million from Sh196.1 million.
The value of its sugar and power generation plants was also written down by Sh2.3 billion.