Kenya to privatise sugar firms to regional African investors

Nairobi, Kenya (Capital Markets in Africa):- Investors across East Africa will own a stake in five Kenya government-owned sugar companies to be privatized over the next 12 months, reports The East African News.

The Privatisation Commission announced on Friday, 5 May that the five sugar companies — Nzoia, South Nyanza, Chemelil, Muhoroni and Miwani — will be sold in phases to strategic investors and out grower companies through an initial public offering. Under Kenyan law, East African investors are regarded as local citizens and eligible to buy shares during the IPO. The privatisation also gives East African companies with a track record in managing sugar companies profitably a chance to invest as strategic investors.

Under the privatisation strategy approved by the National Assembly on 29 April, 51% of the shares in each company will be sold to a strategic investor and 24% to out grower companies and employees over a three year period at the same price as that offered by the institutional investor.

The other 25% will be sold to the public at a later date through an initial public offering in which 6% of the shares will be reserved for individual farmers.

The sale of the sugar firms is part of reforms aimed at making Kenya’s sugar industry competitive and is one of the conditions set by Common Market for Eastern and Southern Africa (Comesa) to extend the one year safeguard granted in 2015.

Chairman of the Privatisation Commission, Henry Obwocha, said that before the sale, the government would clear excess debt and convert the rest into equity in order to turn the sugar companies into financially viable concerns that can access cane as per their optimal capacity.

Analysts said the sale could attract international and regional companies who have been eyeing Kenya’s sugar industry.

“By targeting strategic partners with a track record of managing profitable companies, the chances are higher of finding partners outside Kenya, who would be in a position to turn around the performance of the companies. The advertisement does not limit the interest to local companies,” said Einstein Kihanda, chief investment officer at ICEA Asset Management, adding that companies from Sudan, Malawi, Mauritius and Zambia could be interested.

Previously, Kenana Sugar Company, the leading sugar manufacturing company in Sudan through its branch — Kenana Engineering and Technical Services, had expressed an interest in tenders for the construction of refineries in Kenya.

Two Mauritius based companies have acquired stakes in Kenyan firms. A Mauritius-based investment firm, Alteo which is listed on the Mauritius Stock Exchange is to acquire 51% of Transmara Sugar Company Ltd, subject to regulatory approval. Another Mauritian sugar manufacturer, Omnicane, owns 25% of Kwale International Sugar Company Ltd.

With some of the Kenyan producers struggling due to inter alia the threat from cheaper imported sugar, inefficient and aging plants, operating inefficiencies such as the use of slow maturing sugar cane, this process could see a consolidation of the industry which along with new investment may help make the industry more regionally competitive and boost the sector’s prospects..