NSE suspension of Mumias traps 130,000 small investors

The Nairobi Securities Exchange #ticker:NSE (NSE) Wednesday quietly suspended Mumias Sugar #ticker:MSC from trading at the bourse after the loss-making miller was placed under receivership, thus stopping 130,951 small investors from accessing their shares.

The NSE said it had frozen Mumias shares from trading after consultations with the Capital Markets Authority (CMA) but lamented about scant information on KCB Group’s takeover of the indebted miller’s operations.

Local individual shareholders hold a 64.7 percent stake – or 990 million shares – in the miller, according to the latest available records.

This makes Mumias one of the few companies where retail investors have the biggest chunk of ownership. It also makes the collapse of the miller the most significant for small shareholders who held relatively smaller stakes in ARM Cement and fashion retailer Deacons East Africa that went bust last year.

Most of the small shareholders have between one and 50,000 units of the company’s stock.

KCB Group placed Mumias Sugar under administration on Tuesday after the miller defaulted on loans amounting to Sh12.5 billion that it owes the lender and other creditors. The move effectively kicked out the company’s board and management.

It was not immediately clear whether the suspension in trading of the shares will be limited or indefinite.

“We have placed Mumias on trading halt while we wait for more information from the receiver-manager before further decisions are made,” NSE Chief Executive Geoffrey Odundo told the Business Daily in a phone interview yesterday.

The NSE and CMA are yet to issue a public notice over the suspension.

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 on Tuesday, valuing the sugar firm at Sh413 million. Mumias’ share price has dropped about 98 percent since 2010 when its market capitalisation touched highs of Sh20 billion.

Investors risk losing everything should the company picked to manage Mumias fail to revive the miller. Buyers of the miller’s shares in the past three years have mostly been speculators betting on a reversal of the company’s loss-making streak, a gamble that, given what has happened this week, has not paid off. A drop in the company’s share price below Sh1 last year made the stock easier to buy, with an investor requiring a minimum of Sh100 to enter the miller’s shareholder list.

Mumias, which used to be Kenya’s leading producer of sugar at more than 250,000 tonnes a year, has been beset by poor management and mounting losses in recent years. The firm’s losses in the year ending June 2018 rose to Sh15.1 bn from Sh6.8bn in the previous year. It is yet to release the 2019 results.

Mumias’ loans stood at Sh12.5 billion at the end of June 2018. It owed KCB Sh545 million, Ecobank Kenya Limited (Sh2 billion), French development finance institution Proparco (Sh1.9 billion) and Commercial Bank of Africa (Sh401 million). Other creditors are Treasury (Sh3.1 billion) and Kenya Sugar Board (Sh1.6 billion). It was also operating on bank overdrafts worth Sh2.7 billion from various lenders.