Why re-scheme when you can produce: Star Africa

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    It never rains for Star Africa as the company’s turnaround is taking forever with viability concerns remaining at stake. The company partly finds itself in a similar position to 2013 where it desperately has to renegotiate with creditors. The only difference is that Bluestar Logistics was finally sold and production has improved twice fold. The worrying thing is that the company has come short of adhering to the agreed restructuring plan as per the scheme of arrangement and as you guessed interest has been piling and the hole deepening to the extent of threatening the going concern status of the company. Creditors and shareholders alike have been patient and supportive.

    If one is to consider NSSA for example, the pension fund acquired a controlling stake in Star Africa at a huge premium of above 10c and by 2012 the company’s share price had plunged to 2c implying a huge loss before which NSSA even decided to extend an additional facility worth millions of dollars through an NGCB for the Harare plant refurbishment. This makes the authority both a shareholder and a quasi creditor and the current arrangement scheme’s rearrangement may further deprive NSSA of an long envisaged return and even dilute their shareholding if the proposal for roping in a strategic investor find takers.

    The dilemma that NSSA found itself in, similar to many of its investments, is that it was then faced with the option of either directly funding a retooling exercise, or risk losing the equity investment altogether which was however already bleeding. This was in 2012 when NSSA extended the facility to Star Africa for the plant upgrade and 4 years on the upgrade is still ongoing even the largest of ships don’t take that long to built. The commissioning of the sugar plant was initially scheduled for 2014 and had it been diligently and aggressively pursued there would be no need for re-scheming to talk about.

    If by end of 2014 the plant upgrade would have been completed as initially scheduled production would have gone up initially to 350 tonnes and on completion of the remainder of 40% to 600 tonnes. In the full year to March 2016 Star Africa would have achieved a worst case topline of $135 million and a best case revenue of $150 million given the average price per tonne of circa $840. Star Africa’s cumulative revenue since 2012 is barely $157 million a mere $7 million ahead of what they could have made in 2016. Instead in 2016 the company posted a measly topline of $9.3 million.

    Star Africa’s balance sheet shows about $50 million in loans and borrowing as at March and the figure is currently in the range of $60 million. Had the company managed to diligently execute the upgrade the debt could have possibly been cleared by now given the possible revenue outturn of $150 million as shown above. ICCPL of India who were initially tasked to integrate the plant could possibly have sold Star Africa a dummy.

    The company had to engage another Indian based firm Global Canesugar Services after almost 2 years of stuttering with the former. Star Africa said there has been tremendous progress since these GCS was engaged. It is indeed commendable since production for the first 6 months of the year went up by a significant 300% over last year. but the sticky end remains the plant commissioning which is long overdue because the circus seems to be still in play with initial guidance provided by the company in March suggesting that commissioning was set for September, but by end of September the September the dates have been shifted for the umpteenth time to November.

    The case for waiver with regards to scheme of arrangement can only be compelling for members if management can prove tangibly the progress that has been made within the endogenous function of the operation. Management need to put to rest the matters regarding plant commissioning and capacity ramp up. This is the only function that can give creditors the needed assurance and not the disposal of Tongaat Botswana which is out of management’s control.

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