Questions abound Mumias lease deal as State eyes new investor

Decision seen to be a debt trap for the miller.

In Summary

•President William Ruto has however said his government will look for a strategic investor.

•Kenya’s biggest miller, the Jaswant Rai family-owned West Kenya Sugar, had tabled the highest bid, of Sh36 billion.

Entrance to the Mumias Sugar Company/FILE
Entrance to the Mumias Sugar Company/FILE

Revival of Mumias Sugar is now taking a new twist as the new government throws its full weight behind the miller, amid questions on the lease deal to Sarrai Group.

The million-dollar question now being asked is how KCB Bank accepted a lease offer for Mumias Sugar Limited of Sh20 million per month from Uganda-based Sarrai Group, which had the lowest bid.

The miller’s assets were leased to Sarrai in December 2021 in a move that sparked several court battles that remain unresolved.

It took over the company under a Court of Appeal decision that suspended the quashing of the lease awarded to the Sarrai Group.

Kenya’s biggest miller, the Jaswant Rai family-owned West Kenya Sugar, had tabled the highest bid, of Sh36 billion.

Others were a consortium led by businessman Julius Mwale’s Tumaz & Tumaz Enterprises (Sh27.6 billion), Turkish and French consortium Kruman Finances (Sh19.7 billion), Kibos Sugar (Sh5.9 billion) and India’s Pandhal Industries (Sh5.9 billion).

But how did Ponangipalli Rao, the man appointed by KCB Bank as receiver manager and the courts as an administrator, accept a bid seven times lower than the highest proposal? 

Rao’s decision may have led Mumias into a long-drawn execution, as it suffocates under a debt portfolio of over Sh20 billion, investment experts observe.

He dismissed West Kenya’s bid on allegations that the firm would have become a dominant player.

His argument was however questioned in court, as West Kenya argued that such a pronouncement would only be made by the Competition Authority of Kenya, which was not involved in the process.

The receiver manager had also argued that despite being the highest bid, it did not make sense as the firm would have to crush an impossible amount of sugarcane to meet the Sh36 billion lease price quoted.

Sarrai Group will now be expected to remit Sh19.5 million to the Mumias Sugar administrator every month if things remain unchanged.

West Kenya’s bid would have amounted to Sh150 million monthly, while Kruman Finances would mean Sh70 million monthly.

The other bidders would have been at under Sh30 million monthly.

Interestingly, the complex deal was negotiated and signed within one day of Sarrai being declared the best bidder.

The leasing deal has also unearthed past dealings between KCB, Rao and some of the key individuals behind Sarrai Group.

KCB appointed Rao as an administrator of TSS Grain Millers in 2016 after the firm failed to repay its loans.

Aside from land, TSS Grain Millers also owned milling equipment, silos, and vehicles.

The receiver manager dismissed an Sh 810 million bid for some of TSS Grain Millers’ assets in 2017.

In 2019, just months before taking over Mumias Sugar’s affairs, he sold the same assets to Jamii Flour Millers for Sh350 million, less than half the bid made just two years earlier.

Jamii would change its name to Ustawi Grain Millers. The firm is owned by Sarbjit Singh Rai, Amaanraj Rai and Rajbir Rai who are also the faces behind Uganda’s Sarrai Group.

On April 14, 2022 High Court judge Alfred Mabeya canceled the Sarrai Group contract and ordered that Rao steps aside to allow an independent administrator.

Among the documents that led to Justice Mabeya’s decision was an affidavit detailing Mumias Sugar’s finances during the time Rao had been in charge.

He indicated that Mumias had made Sh800 million in that time, but none of those funds had gone into repaying any part of KCB’s debts.

Nevertheless, the miller went ahead and took an overdraft of Sh200 million from KCB, further deepening its indebtedness.

Part of Justice Mabeya’s reasoning was that the receiver manager’s two-year stint had not yielded much and had created mistrust with other stakeholders, as he was largely loyal to the lender.

KCB and Rao appealed the decision and obtained orders suspending Justice Mabeya’s decision.

Three months later, Justice Mabeya backed out of the case after stating that some parties had filed complaints against him, including at the Judicial Service Commission (JSC), over his handling of the matter.

At the moment, Sarrai Group is in control of Mumias Sugar’s equipment and milling business.

Sarrai Group was founded in 2017. Its owners also have majority control of Hoima Sugar Limited and Kiryandogo Sugar Company in Uganda.

KCB appointed the receiver manager after Kimeto & Associates Advocates filed an insolvency petition against Mumias Sugar which was unable to pay the law firm a pending Sh76 million in legal fees.

Rao’s stint and attempts to return to management of Mumias Sugar have ruffled feathers, as he has often been at loggerheads with other creditors that claim they have been locked out of information regarding the miller’s financial affairs.

Dubai-based Vartox Resources Inc and France’s Proparco are among the creditors that have not had a cordial relationship with the receiver manager.

Vartox in court papers has complained about attempts to keep Mumias in a debt trap at the expense of other creditors.

While one of East Africa’s biggest consumer goods brands returning to the shelves may seem exciting, court proceedings indicate that Mumias Sugar may have walked into a long-drawn execution.

As of today, Mumias Sugar owes creditors over Sh23 billion even after which the taxman waiving Sh11 billion in unpaid levies.

That means the Sarrai deal will at best settle 26.9 per cent of Mumias Sugar’s debts with creditors waiting for years to recover all their funds. 

President Ruto’s commitment

Its future however remains bleak after President William Ruto’s visit of the western Kenya region where he affirmed his government’s commitment to revive the ailing miller.

During an address to Kakamega residents on December 7, the President said that the government would settle all Mumias Sugar’s debts and revive the firm.

Ruto’s administration is shopping for a strategic investor who apart from reviving Mumias, the investor is expected to give the county at least Sh100 million monthly towards social development.

“We are going to bring an investor whether he will be short or tall, black or white. We shall agree beforehand with the new investor that every month Sh100 million from Mumias Sugar Company be paid to the county government of Kakamega,” Ruto said.

According to the President, the government has been injecting funds, nearly Sh5 billion in recent years, but the sleeping giant which went down as a result of runaway corruption, theft, book cooking and bad governance Had failed to stabilise.

Kakamega residents have sacrificed 8,000 hectares (19,768 acres) and it should bring some benefit, Ruto said.

The eviction of former Mumias Sugar Company workers from their houses by Sarrai Group, and failure to pay their arrears amounting to Sh2.3 billion, is also said to be another issue that angered the President.

Former Kakamega Senator Cleophas Malala had earlier appealed to the President to find a long-term solution to the issues surrounding Mumias Sugar.

“Mumias sugar is full of Ugandans. Our people have been denied job opportunities. Those former workers are now being evicted from their houses which is totally wrong,” Malala had said.

The President’s directive and the quest for a “strategic investor” is seen as good news for sugarcane farmers, whose debts have remained unpaid for years while growing on account of interest.

His promise has also fallen in line with a petition filed by Busia Senator Okiya Omtatah, who in 2021 sought to have the National Treasury compelled to revive Mumias Sugar.

Omtatah had also faulted the selection of Sarrai to lease Mumias Sugar’s assets and equipment, arguing that the procurement process was shadowy.

An initial attempt to find an investor had drawn the attention of the Narendra Raval-associated Devki Group, which was willing to pay Sh60 billion over the 20-year period.

But when pressure mounted for the contract details to be made public, the Devki Group backed out.

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