Mumias' plummeting stock worries shareholders

NAIROBI, KENYA: In January 2007, Mumias Sugar Company Limited’s stock turned into a phenomenon, with investors taking bank loans to enable them buy the shares, then trading at around Sh50. Top brokers even advised that a share split would be ideal because the stock was too expensive.

At the time, the Government was reducing its stake in the country’s most profitable sugar miller in a second offering after an initial share sale in 2001.

EAGER INVESTORS

“We think that a split in Mumias shares would make it more affordable. The company could consider instituting a 1:5 share split to stimulate further trading in the shares and thereby make it easier for farmers to acquire such shares,” Mr Jimnah Mbaru, currently Dyer and Blair Investment Bank’s chairman, told eager investors during the bell-ringing ceremony.

Security officials had a difficult time controlling the sea of humanity anxious for a piece of a stock they believed would multiply their investment.

Analysts had been wowed by Mumias’ plans to produce ethanol and cogeneration of electricity from bagasse — the otherwise useless fibre that remains after the extraction of juice from sugarcane.

On future prospects, a 16,000 hectare sugarcane project on the Tana River was thought to be a permanent solution to the declining productivity in the Western Kenya belt.

Mumias, it was said, presented a model that other companies should copy if they hoped to succeed. Its fundamentals were strong and poised to deliver consistently better results and even bigger dividends for investors.

FREEFALL

But in one year, the stock price slumped by a staggering 70 per cent and nothing short of miracle could possibly reverse its freefall. On Friday last week, Mumias Sugar shares closed at Sh2.60, and investors have been feeling the heat.

Mr Stephen Oiro is one such investor. He contemplated cutting his losses and running as the stock kept going south, but he does not know where the share certificates he was given by Discount Securities, a stock broker, are.

“I have not been able to trace those papers for some time, but they are worthless to me,” said Mr Oiro, who bought into the offering with his first salary.

He is among an estimated 20,000 investors who helped the State net over Sh4.5 billion from that sale alone.

The firm’s past management teams have claimed that the company was struggling to access sufficient sugarcane for crushing after tonnes of the crop were stolen from its nucleus farms and cheap sugar was dumped in the market, making it difficult to offload its produce.

FINANCIAL MESS

But critics like Mr Joseph Barasa, a spokesman for a farmers’ association, have been quick to term these claims excuses to cover up mismanagement and graft.

“It is a sum total of gross inefficiencies and corruption propagated by selfish interests,” said Mr Barasa, a petitioner in an ongoing parliamentary probe on sugar smuggling.

Mumias has in the most recent times been hit by a series of unfortunate incidents, including protests from its contracted transporters leading to suspension of crushing last month.

But Mr Paul Orem, the chief executive of Dyer and Blair, thinks the sugar sector is still very profitable, which would explain the entry of several new private sector players, such as Kwale International Company.

However, as it is now, Mumias is teetering on the brink of bankruptcy, according to its managing director, Mr Coutts Otolo, who said that a lender was seeking its dissolution.

Mr Otolo stunned MPs earlier this month when he said that the creditor, since established by The Standard to be Equity Bank, Kenya’s largest financial institution by customer numbers, had asked a court to wind up the miller over a Sh93 million debt.

While the amount in question might seem small for Kenya’s biggest sugar miller, the circumstances as explained by Otolo indicate Mumias could be hurting since the owed figure has not been contested.

The miller got into the financial mess following a sugar importation deal that went sour after a contracted dealer received Sh460 million from the firm’s customers but did not remit the money to Kenana, a Sudanese miller.

“A third party received Sh460 million from our customers that was purportedly paid into Mumias’ bank accounts,” Otolo said.

Kenana had refused to release the sugar from a bonded warehouse in Mombasa, prompting Mumias to seek a credit facility from Equity Bank to forestall a crisis with its customers who had paid up.

Essentially, Mumias paid twice for the sugar in a transaction Otolo described as “very nasty”.

But that was only the latest in a series of blunders that have dampened the prospects of a firm whose revenues topped Sh19 billion at one time.

But the current board is determined to turn things around.

Otolo, previously the CEO of audit firm Ernst & Young Eastern Africa, is the man expected to lead the miller’s revival — at least temporarily, since he has been contracted in an acting capacity.

His entry followed the suspension and later sacking of Mr Peter Kebati in May, alongside several members of his top management.

“We can compete with any company within the Comesa region,” Otolo told reporters last month when he revealed plans to reorganise the firm’s Sh5 billion debt.

Negotiations with seven commercial banks, he said, had begun to provide the much-needed credit that would help the company deal with its cash flow problems.

Rescue plan

At least 300 employees in different cadres would also be retrenched in a rescue plan hatched by the board.

Mumias has been silent on the Tarda project, which would require a Sh15 billion investment upfront, but whose benefits would include modernising farming techniques and growing faster-maturing cane varieties.

The proposed project would also help the miller reduce its reliance on small-scale farmers in its backyard who have in some instances sold their produce to the competition.

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