Mumias Sugar Co., Kenya’s biggest miller of the sweetener, is in talks with seven banks to restructure about 5 billion shillings ($57 million) of debt, Acting Chief Executive Officer Coutts Otolo said.
The company wants repayments rescheduled to free up cash flow as it seeks to return to profit, Otolo said in an interview at the company’s headquarters in Mumias, about 320 kilometers (200 miles) northwest of the capital, Nairobi. He declined to identify the lenders the company is negotiating with.
“Debts that were to mature early will be rescheduled by a further three to five years to allow us to have sufficient cash flow to run the business,” Otolo said on June 24. “The talks are at an advanced stage and we are likely to see a settlement within a short time.”
Shares in Kenya’s only publicly traded sugar company have fallen more than 50 percent over the past two years as the company had to compete with illegally dumped sugar and cane theft that led to a 1.67 billion-shilling loss last year. The Nairobi Securities Exchange on June 10 removed the company from its benchmark NSE-20 Index.
Mumias expects to report a second consecutive annual loss for the year that ends June 30, Otolo said in an interview earlier this month, declining to specify the magnitude.
Sugar production accounts for 15 percent of output in Kenya’s agriculture industry, which makes up more than a fifth of gross domestic product, according to a report published on the Kenya Sugar Board’s website.
“At the moment, the industry is facing several challenges including capacity under utilization, lack of regular factory maintenance, poor transport infrastructure and weak corporate governance,” according to the report.
On April 1, Mumias suspended its CEO Peter Kebati and Commercial Director Paul Murgor for what the company’s Chairman Dan Ameyo said was a result of “widespread claims of questionable sugar sales and importation transactions touching on our company.” Kebati and Murgor both deny any wrongdoing.
A forensic report by KPMG found Mumias had incurred a 1 billion-shilling loss between January and March 2014 because of illegal sugar imports, Mumias said in a statement this month.
The Kenya Sugar Board, which regulates the nation’s industry, said Mumias faces constraints that are “generic with the other millers in the country.”
Domestic production costs can be as high as $900 per metric ton of refined sugar, compared with as little as $300 per ton in countries in the 19-nation Common Market for Eastern and Southern Africa bloc, whose members include South Africa and Zambia, said sugar board CEO Rosemary Mkok.
“Our millers find themselves competitively disadvantaged and arguably would not be in a position to deflect competition emanating from imports,” Mkok said by phone on June 25.
In February, Comesa agreed to Kenya’s request to extend a quota on the amount of sugar that can be imported duty free for one year.
“We can compete with any company within the Comesa region,” Otolo said. “The challenge for us is our production cost, particularly the transportation of cane, which costs 3 billion shillings annually including the illegal importation of duty free sugar.”
Raw sugar for October delivery rose 0.6 percent to 18.72 cents per pound on ICE Futures U.S. at 12:23 p.m. in New York yesterday. The price has climbed 14 percent so far this year.
Mumias shares advanced for a second day, gaining 1.7 percent by 9:38 a.m. in Nairobi, on track for the highest closing level in two weeks.