Capital Markets

Disposal of five State-owned sugar firms to be a hard sell

 Privatisation Commission chairperson Henry Obwocha. PHOTO | SALATON NJAU | NMG
Privatisation Commission chairperson Henry Obwocha. PHOTO | SALATON NJAU | NMG 

Kenya is set to finally sell five State-owned sugar millers after years of false starts as it seeks fresh capital to revitalise the loss makers and comply with regional trade rules.

The millers, with exception of Sony and Nzoia sugar factories, are in a dilapidated state and could be a hard sell.

They are also highly indebted and the government has only agreed to waive a fraction of debts in a move that could leave investors with huge debt burdens.

Nzoia Sugar Company, for example, owes Sh37 billion, Miwani Sugar Company (in receivership) Sh28 billion, Muhoroni Sugar Company (in receivership) Sh27 billion, Chemelil Sugar Company Sh5 billion and Sony Sugar Company Sh3 billion.

Some analysts have argued privatisation is not the solution, giving the example of Mumias that was sold to investors long ago, but is still faced with a myriad of challenges.

However, Privatisation Commission chairperson Henry Obwocha said the sale model is different from the one used at Mumias.

“At Mumias, we have a lot of small shareholders—this makes it difficult for them to make decision that would impact positively in the business. In the arrangement that we have, an investor will have the controlling stake of the factory in what will hasten decision making,” said Mr Obwocha.

The government plans to sell 51 per cent stakes in the companies to strategic investors by August and reserve another 24 per cent for farmers and employees.

The State will then sell the remaining 25 per cent through an initial public offering once the factories are profitable.

But even with privatisation, it is not clear whether the factories will be able to compete with the influx of sugar from Common Market for Eastern and Southern Africa (Comesa) once the current safeguards lapse 2019.