(Bl
oomberg) — Kenya will offer five state-owned sugar companies for sale to private investors over the next year after writing off 59 billion shillings ($611 million) of debt, the Privatization Commission said.
The government plans to sell its stakes in Nzoia Sugar Co., South Nyanza Sugar Co., Chemelil Sugar Co., Muhoroni Sugar Co. and Miwani Sugar Co. to make the industry “more viable,” the commission said in a May 15 statement. T
he companies accounted for about 10 percent of the 592,100 metric tons of sugar produced in Kenya last year, according to Kestrel Capital (East Africa)Ltd., a Nairobi-based brokerage.
“Government reached the decision of bailing them out completely so that the firms would look attractive to investors,” Henry Obwocha, the chairman of the commission, said in an interview on May 18 in the capital, Nairobi. Of the total debt, the state was owed 35 billion shillings, suppliers and farmers 6 billion shillings, and other creditors and taxes amounting to 13 billion shillings, he said.
Kenya is trying to overhaul its sugar industry, which the Food and Agriculture Organisation says is beset by problems including dilapidated factories, poor governance, insufficient funding and inadequate research. Domestic production costs can be as high as $900 per ton of refined sugar, compared with as little as $300 per ton in countries in the 19-nation Common Market for Eastern and Southern Africa bloc, according to Kenya’s state-run Sugar Directorate.
Production of the sweetener accounts for 15 percent of Kenyan agriculture, which makes up more than a fifth of the country’s $55 billion economy, Sugar Directorate data shows. The industry employs at least 250,000 people, the FAO says. The country usually fills an annual sugar deficit of about 200,000 tons with imports from the region.
The objectives of privatizing the millers include enhancing competitiveness and diversifying into “co-generation of power, ethanol production and other value-added products,” according to the commission.
The government plans to sell 51 percent stakes in the companies to a “strategic partner,” and a further 24 percent to both growers and employees, Obwocha said. The government, which currently owns at least 98 percent of each of the five producers, will retain a 25 percent interest in them, he said.
“We are not ruling out the possibility of a foreign strategic investor,” Obwocha said.
Kenya is also completing plans to sell the state’s stakes in a number of hotels, he said. Manufacturing companies and financial institutions are also being lined up.
The government’s interests include 38.8 percent of the Intercontinental Hotel in Nairobi, 40.57 percent of the Nairobi Hilton Hotel and 39.1 percent of Mountain Lodge.
“No estimates have been given how much government expects to realize from the sale of those shares in the three prime properties,” the commission said last week.
The government has ruled out the privatization of the National Bank of Kenya Ltd., Obwocha said.
The state “injected billions of shillings into the bank and therefore holds preferential shares and that would complicate issues if the bank were to be privatized,” he said.
