LISTED sugar refinery Star Africa Corporation (Star Africa) is struggling to find buyers for its Tongaat Hulett Botswana and Bluestar Logistics, delaying part payment to its creditors, informed sources have said.
Top management at the company said the company was on the verge of concluding the disposal of the stakes to a listed Zimbabwean company, but had to reverse the transaction at the last minute.
“The buyer wanted to stagger the payments over three years, but we are saying we need the money to pay off our creditors,” said an insider who requested not to be named, adding securing buyers is proving to be a challenge due to the current liquidity crisis.
The insider said the company will sink in the next three years into deeper financial woes.
Disposal of the company’s stake in the two units is part of a scheme of arrangement approved by the High Court last year in August for part settlements to creditors who were at the time owed US$19,7 million.
In a trading update at the company’s annual general meeting held in Harare on Monday, CEO Sam Mushiri said the company is in default with regards to the part settlements and the first installment under the scheme of arrangement.
He said the board and management have re-examined the scheme in light of changed market conditions and are in the process of engaging creditors.
“There is an urgent need to address the balance sheet of the company and shareholders will be approached before the end of the calendar year with proposals in respect thereof,”said Mushiri in a statement.
Under the scheme of arrangement, a six-month standstill period was agreed to enable the disposal of the company’s stake in Tongaat Hulett Botswana and Bluestar Logistics for part settlements to creditors. Loan tenures of up to 36 months were also accepted by lenders and creditors.
Mushiri said the company had managed to meet three other deliverables under its strategy in respect of upgrading its Goldstar Sugars Harare plant, ensuring a sustainable raw sugar supply arrangement from traditional suppliers in the Lowveld and disposal of non-core assets.
During the year under review, Star Africa disposed of several of its strategic business units as going concerns to focus on core business. Mushiri said these included Arthur Garden Engineering, the company’s retail business in Matebeleland namely Hwange Spar and Savemor Gwanda, Grant Chemicals and the Packaging business units, Highfield Bag and Polyfilm Plastics.
“Consequent thereof, the company’s focus is now on the core business of sugar refining and on the production of specialty (value added) sugar products at Country Choice Foods. We still operate in the bulk haulage sector at Bluestar Logistics, pending its disposal in terms of the Scheme of Arrangement,” he said in a statement.
In terms of raw sugar supply, Mushiri said the company continues to be in discussions with Zimbabwe Sugar Sales on the price of their raw sugar. Raw sugar constitutes about 70% of Star Africa’s costs.
“We agreed to and are currently procuring this raw material at an ex-works price of US$510 per tonne with effect from 1 September 2014. Although this price is viable, it is only marginally so.”
The company said the US$47 million upgrading of Harare refinery is in the last phase of commissioning and product, refined sugar, was already coming out.
Mushiri said assessments indicate that the product and process are within the quality and productivity parameters the company contracted for.
“These parameters include the colour of the refined sugar which is less than that specified by our most demanding customers – the beverage bottlers. Other parameters relate to process losses which should be within 4%, reduction of coal consumption from 35% to around 20% and reduction of water usage through the application of new water recycling techniques,” he said.
During a tour of the upgraded plant on Monday, Star Africa general manager Marvelous Sibanda said the plant will produce 600 tonnes of sugar per day, double the previous capacity.
Mushiri said the trading environment continues to be tough.
He said going forward, the company is focusing on its re-entry into the refined sugar market.
In the company’s latest full year financials, Star Africa reported a net loss of US$12,2 million for the period ended March 31 2014 compared to a loss of US$16,4 million prior year with current liabilities exceeding current assets by US$32,3 million compared to US$22,2 million in 2013.