starafrica stuck with US$7m plant


Starafrica chairman Joe Mutizwa

BELEAGUERED conglomerate, starafricacorporation, has failed to reopen its sugar processing plant after a glitch on an upgrade that now requires additional capital outlay, the Financial Gazette’s Companies & Markets can report.
Sources said the upgrade had failed to integrate with an old section of the plant, resulting in engineers declining to approve the commissioning of an upgrade done on about 60 percent of the sugar plant.
“It’s compatibility problems that now need to be addressed,” a source said.
“The challenge will be getting the bailout partner. The last upgrade was funded by one of the shareholders,” he said, referring to the National Social Security Authority (NSSA).
The development may result in the company, whose core business was not operational for most of the previous financial year, experiencing serious erosion of shareholder value after posting successive losses over the past few years.
It may also fail to meet the expectations of a scheme of arrangement it signed with lenders and creditors, under which the total amounts owed should be settled over a period of up to 36 months.
The scheme of arrangement was sanctioned by the High Court on August 7, 2013 and registered with the Registrar of Companies on August 14, 2013.
The scheme entails a restructuring of both the company’s debt and balance sheet, the disposal of Bluestar Logistics and the company’s 33,3 percent shareholding in Tongaat Hulett Botswana (Proprietary) Limited to fund the requisite part settlements to lenders and creditors.
The scheme also gave the company a six-month moratorium to facilitate the plant upgrade at Goldstar Sugars Harare (GSSH).
Although it had been reported last year that the plant upgrade was successfully completed, starafricacorporation’s company secretary, Aldo Musemburi, said a planned commissioning of the plant was no longer feasible as further upgrades were now required.
He said “both the engineers from the equipment suppliers and third party engineers who were invited to audit the plant upgrade, recommended that the old section of the plant, which comprises of 40 percent of the entire plant, needed to be either refurbished or completely upgraded”.
The firm embarked on the US$7 million upgrade of its GSSH plant to double daily capacity from 300 tonnes to 600 tonnes.
The company procured equipment from Integrated Casetech Consultants (Private) Limited (ICCPL) of India for upgrading the plant at GSSH. This equipment was inspected by Societe Generale de Surveillence (sgs), a leading global inspection, verification, testing and certification services provider. Installation of the equipment was carried out under the supervision of ICCPL.
The upgrade was initially scheduled for completion by the end of November 2014, but was rescheduled to the end of January this year and continued to be deferred owing to the teething problems experienced with the integration of the new and old equipment.
Musemburi said the new upgrade or refurbishment would require nearly US$2 million, but did not indicate if the funding had been secured.
“The estimated cost of refurbishment is up to US$1,8 million. In order to be able to test the upgrade against the design parameters, the commissioning and final sign off of the plant has consequently been deferred until the refurbishment or upgrade is carried out, without prejudice to the manufacturer’s warranties,” he said.
The sugar processor is hoping to recapture its share of the market starting with supplying bottling and industrial customers as well as big sand retail supermarkets.
“In order to re-establish the relationship with its customer base, and for the period to March 2016, the company is concluding sugar uptake agreements with some key customers that will see a minimum of 24 000 tonnes being sold to bottling and industrial customers during that period.
“In addition, and in order to ensure that sugar is available to retail customers across the country, the company is finalising a sugar distribution agreement, from which it is anticipated that a minimum of 5 000 tonnes of sugar will be sold up to March 2016,” Musemburi said.
Triangle-based Hullets, Malawi’s Illovo Group as well as West Food Distribution Network are some of the suppliers to the local sugar market who have taken a significant chunk of the Goldstar brand’s market share.
The US$7 million for the original upgrade was financed by NSSA, which holds an 18 percent shareholding in the embattled sugar processor.
The compulsory pension scheme recently came under fire from the auditor-general for continuing to pump money into another ZSE-listed business in which it has an interest despite failure by that business to pay back loans due to financial distress.
It is therefore likely to be difficult for NSSA to fund starafricacorporation’s further upgrade without courting the ire of auditors, and consequently government, particularly given that it has previously come under attack for its investment in the sugar manufacturing company. – Cyril Zenda