Tough journey for Mumias in revival efforts

Mumias Sugar Company has started a tough journey towards revival after the government’s release of Sh1 billion for its resuscitation, following years of financial mismanagement.

Already riddled with debt in excess of Sh5 billion, the woes of the miller, which is to spend half of the Sh1 billion to pay farmers, are far from over.

According to Standard Investment Bank head of research Francis Mwangi, the money will provide a short-term relief for Mumias, which is grappling with a complex web of challenges that need to be sorted out if revival plans are to succeed.

“It is clear the miller has a long way to go. Plans for the rights issue are still not clear, it needs to pay suppliers and clear outstanding debt. There is also need to refurbish the plant to make it more efficient,” he said.

Among key challenges that have been facing Mumias include financial irregularities, a bloated work force, weak governance systems, inefficiencies in production as well as overstatement of transport and input costs.

In the half year ending December 2014, the miller booked a Sh1.5 billion loss. In the previous financial year of 2013/14, it reported a loss of Sh2.71 billion. In January, the government released Sh500 million in an attempt to boost the miller’s cash flow.

In March, Deputy President William Ruto brokered a deal that would pave the way for the rescue of the miller from collapse.

The agreement entailed a Sh5 billion plan that would see the public and shareholders inject the money in the miller if it was to get back on its feet.

With the Sh1 billion already given, the Sh4 billion rights issue has delayed, with no indication on when the firm is going to announce the cash call plans. Such uncertainty continues to feed negative public sentiment in the miller, according to Mr Mwangi.

“Market sentiment for the miller is still negative as it is yet to announce concrete plans for the rights issue. The miller’s share price has also been on a poor run,” he said.

There is also seeming uncertainty on the exact amount of money the miller expects to raise from the cash call.

Analysts, however, indicate that Mumias would be required to more than double its current share capital of 1.5 billion shares if it is to secure at least Sh4 billion from the market.

It also remains unclear how shareholders will participate in the cash call. Full shareholder interest would be one of the key turning points for the once-giant miller.