What will it take to save Mumias?

The Receiver Manager of Mumias Sugar Company Limited (in receivership) Ponangipalli Venkata Ramana Rao has said selling assets may not save the milling company since the result cannot settle all its creditors.

He spoke after his efforts to revive Mumias’ operations and payback lenders were quashed leaving him with the option of leasing Mumias’s assets for a given period.

Rao explained this was a result of the miller’s move to use initial government funding to finance past management losses without any value addition.

“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.

A receiver is hired to carry out a cost-benefit analysis in determining the most appropriate debt recovery strategy, availability of funding for the company’s operations, the general state of the assets, prevailing market conditions and cooperation by other stakeholders.

According to the receiver, his recovery options have been narrowed down after some lenders obtained a restraining order against the sale of immovable assets on November 6, 2019.

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 a letter dated June 4, 2021 obtained by The Standard, 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 been eroded and it was unlikely for investors to be interested in purchasing a stake.

“As of 30 September 2019, KRA had claimed tax arrears of Sh10.35 billion with Mumias,” Rao added.

The receiver complained of several failed attempts to vandalise the assets which he adds, he works in unison with the county security and police officers to ensure safety.

Mr 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.