Mumias is insolvent, declares receiver-manager

Mumias Sugar will require more funds even after its sale to offset debts owed to lenders and suppliers, thereceiver-manager Ponangipalli Rao has said. 

In a detailed response to the Senate Committee on Agriculture in response to  questions raised by Kakamega Senator Cleopus Malala on the planned leasing of the miller, Rao said the firm's liabilities are almost twice its asset value. 

He said Centenary Valuers Ltd placed the market value of Mumias's assets at Sh18.4 and the forced sale value of assets at Sh13.8 billion. 

In the letter dated June 4, the receiver said as of 2018, Mumias had assets worth Sh15.7 billion while its liabilities stood at Sh30.1 billion, meaning the assets have shed close to Sh4 billion in value in the past three years. 

“The net assets 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.

He observes leasing the assets for a longer period of time is the only viable strategy to keep the firm on its feet, urging leaders to stop politicising the effort.

The firm crumbled in 2018 despite a persistent government bailout. According to the receiver manager, funds previously injected into the business by the State were used to settle past debts, and were, consequently, exhausted.

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.

He thanked creditors for supporting the firm's effort to rise from ashes but pleaded for more patience, saying that constant court battles have derailed asset disposal. 

“Any further funding has a risk due to non-cooperation from other secured lenders and several court cases with a risk of uncertain outcome,” Rao said. 

In 2019, KCB Group appointed PV Ramana Rao to run the company until the group recovers close to the Sh3 billion it lent the miller.

Last week, several Western Kenya leaders opposed the move to lease the miller to a private developer after Devki Group won the bid.

Led by Amani National Congress leader Musalia Mudavadi and  Malala, they demanded details of the bidding process and the firm's financial health since the receiver took over. 

In his response, Rao explained 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.

Rao said the bid was open for a year as the receiver was keen to obtain the best offer until an investor is finally identified.

 The bidding was done using the “private treaty” basis which saw eight firms listed. 

They include Russia's Catalysis Group, Sarrai Group from Uganda, Kruman Associates from France and Kenya's Kibos Sugar. 

Others are Devki Group, Premier JV, India, Third Gate Capital Management and Godavari Enterprises, India.