Starafrica seeks new investor and change to scheme of arrangement with creditors

Starafrica seeks new investor and change to scheme of arrangement with creditors

HARARE, September 30 (The Source) – Starafricacorporation it is actively looking for a strategic investor to inject working capital in the struggling company and will seek shareholder and creditor approvals to change the terms of its scheme of arrangement at an extraordinary general meeting in November citing a change in the market dynamics.

The group owes creditors $60 million and is under a High Court sanctioned scheme of arrangement agreed to on August 7, 2013 requiring it to dispose its two assets within six months from 14 August 2013 and settle its obligations.

Loan tenures of up to 36 months were agreed by the lenders and creditors from that time but none of the obligations have been met.

The group has so far failed to sell off the two assets — its 33.3 percent stake in Tongaat Hulett Botswana (THB) and its Bluestar Logistics subsidiary — while the price of sugar has fallen by over 20 percent, affecting its cash flow. Also, the market uptake has been slow as most of its potential industrial customers are still running down stockpiles of imported sugar before committing to buying from the troubled firm.

“The company is in default with regards to the part settlement and instalments due to the challenges in disposals and delays in  the Gold Star Sugars plant upgrade,” said chief executive Regis Mutyiri at the annual general meeting on Wednesday.

“The board and management have re-examined the scheme in light of changed market conditions which have resulted in the price of sugar falling from $940 per tonne at the onset of the scheme to the current price of $750 per tonne.”

Mutyiri said the business was viable, but there was an urgent need to address the balance sheet of the company to ensure its status as a going concern.

“Management and the board have engaged key creditors and shareholders on an option to restructure the company’s balance sheet. The shareholders will be asked to pass a resolution to that effect at an EGM ahead of a meeting with creditors expected before end of November this year,” he said.

In August its auditors, Ernst & Young, raised alarm over the group’s going concern status after it reported significant losses for the sixth year running, with its current liabilities exceeding assets by $52,2 million.

In the full-year to March, starafricacorporation also exceeded its borrowing powers by $41,3 million, although $37,3 of that was ratified at last year’s AGM while the remaining $4,2 was ratified at the Wednesday meeting.

Both THB and Bluestar are operating profitably, generating dividends that the group uses as working capital and their disposals are likely to be shelved and Mutyiri told The Source that the future of the subsidiaries would be discussed by shareholders taking into account the market dynamics.

On the group’s new plant, he said remedial work on 40 percent of the plant — which has not been upgraded —  was ongoing at a cost of $300,000 and would be completed by mid-October.

“The upgrade will enable consistency and achieve an output of 300 tonnes per day. That output will be sufficient to meet all domestic requirements at the moment.”

At full capacity, the new machine will produce 600 tonnes of sugar per day and the company is exploring  export opportunities in the region.

In the five months to August, Starafrica produced 3,607 tonnes of refined sugar over two weeks but  shut down the machine for two months due to capital constraints and the slow uptake of sugar by the market because of lower priced imports.

Production resumed mid-September and is targetted to consistently hit 300 tonnes per day from the latter half of October, added Mutyiri.

Raw sugar suppliers have lowered prices while government’s move to introduce a duty of 10 percent plus $100 per tonne has made local sugar competitive against imports, but weakening regional currencies against the United States dollar used locally neutralised that advantage.

Mutyiri, who took over as chief executive from Sam Mushiri in June this year, said the company had concluded an agreement with a wholesaler which has a countrywide reach which will make its sugar reachable to most domestic consumers.

The company plans an aggressive campaign to increase domestic consumption of sugar to match or pass industrial usage, a feat it enjoyed 10 years ago. Currently, 80 percent of its output is for industrial use.