Selling all the assets of Mumias Sugar Company would not raise enough funds to settle the miller’s debts, the firm’s receiver-manager Ponangipalli Rao says.
Mumias Sugar Company has been under receivership after its loss-making streak persisted.
Rao now says leasing out Mumias’s assets for a lengthy duration would play a significant role in getting the sugar company back on its feet.
According to the receiver manager, funds previously injected into the business by the State were used to settle past debts, and were, consequently, exhausted.
“Any further funding has a risk due to non-cooperation from other secured lenders and several court cases with a risk of uncertain outcome,” he said in a confidential letter obtained by The Standard.
Rao said plans of a possible sale of the company’s assets have been met with resistance, with some lenders filing petitions in court barring the disposal of the assets.
The receiver also disclosed how he initiated the revival process by starting distillery operations that faced several challenges due to the shortage of molasses and the exorbitant cost of transporting it. The distillery operation was suspended in March 2021.
In the letter dated June 4, the receiver said as of 2018, Mumias had assets worth Sh15.7 billion while its liabilities were Sh30.1 billion.
Liabilities refer to the amount of money a company owes its lenders and creditors.
“The net assets/owner’s equity position stood at a negative of Sh14.4 billion, which implies that the company would not be able to meet long term and short-term financial obligations from its assets and is, therefore, insolvent,” the receiver noted in his letter.
An asset valuation done through Centenary Valuers in November 2019 estimated the market value of Mumias’ assets to be Sh18.4 billion.
“A mismatch can also be seen in the Company’s liquidity, which has Sh21 billion of current liabilities as compared to Sh628 million of current assets,” he went on.
The receiver explained the company’s assets started deteriorating as liabilities increased in 2018 due to additional interests, penalties on loan payment defaults, tax arrears and other recurring expenditures.
He added the company’s share value had dropped significantly and it was unlikely that investors would be interested in purchasing a stake.
“As of September 30, 2019, KRA had claimed tax arrears of Sh10.35 billion with Mumias,” Rao added.
Rao was appointed receiver of the company by the Kenya Commercial Bank (KCB) in September 2019, to help secured creditors recover their money after Mumias was unable to pay debts.
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