KCB takes over running of debt-ridden Mumias

KCB Group #ticker:KCB has placed Mumias Sugar Company #ticker:MSC under administration after the miller defaulted on loans amounting to Sh12.5 billion, effectively kicking out the company’s board and management.

The amount is owed to KCB and other creditors.

KCB said it had appointed consultancy firm PVR Rao to take over the Nairobi Securities Exchange-listed firm’s operations from Tuesday.

The bank’s action is set to prompt the Capital Markets Authority (CMA) to suspend Mumias’ shares from trading on the NSE in line with the regulator’s previous response to listed firms placed under administration, such as ARM Cement.

The miller’s share price, which has been on a long-term decline on the back of losses and a dividend drought, has shed more than half of its value over the past six months to close trading at Sh0.27 yesterday, valuing the sugar firm at Sh413 million.

“KCB Group can confirm that Mumias Sugar has been placed under receivership to protect the listed firm’s assets,” KCB said in a statement, adding that this will allow the administrator to maintain operations and bring the miller back to financial stability.

The bank says it is pre-empting more punitive actions sought by other creditors, including auction of Mumias’ assets.

Unsecured creditors have gone to court and some have already obtained court orders attaching the miller’s assets, according to KCB.

The bank did not say whether the administrator will receive new funding to help turn around Mumias, which remains closed from last year.

It was also not immediately clear whether KCB’s action is supported by other banks whose loans the miller has also failed to pay.

Mumias’ loans stood at Sh12.5 billion at the end of June 2018. It owed KCB Sh545 million, Ecobank Kenya (Sh2 billion), French development finance institution Proparco (Sh1.9 billion) and Commercial Bank of Africa (Sh401 million).

Other creditors are the Treasury (Sh3.1 billion) and Kenya Sugar Board (Sh1.6 billion). Mumias was also operating on bank overdrafts worth Sh2.7 billion from various lenders

Reviving the miller, however, will require injection of substantial new capital. A task force set up by the Kakamega county government said the miller requires at least Sh5 billion to start operations.

Mumias had asked the lenders to restructure their loans but the plea was rejected, with the government also balking at providing additional bailout funds to the firm.

The government, which owns a 20 per cent stake in Mumias, has offered the firm Sh3.5 billion in bailout funds.

But the billions have failed to boost the miller’s earnings and capital.

Mumias is technically insolvent to the tune of Sh6 billion after sinking further into losses that have seen its total liabilities surpass total assets.

The firm’s losses in the year ending June 2018 rose to Sh15.1 billion from Sh6.8 billion the previous period. It is yet to release the 2019 results.

Mumias joins a growing list of distressed firms that have gone into administration.