India’s Mehta takes on Rai with Agro Chemical, Muhoroni bid

India’s manufacturing giant Mehta Group plans to bid for a joint takeover of Agro Chemical and Food Company and Muhoroni Sugar in what will give it a stronger footing to fight for the control of the lucrative sugar industry now under the tight grip of the billionaire Rai family.

Days after the State announced plans to invite private sector bids for five struggling entities, the Business Daily has learnt that Mehta Group, being a major shareholder of Agro Chemical, has a preemptive right to buy the 56 percent government stake in the alcohol manufacturer.

However, the conglomerate whose interests span sugar milling, cement and insurance, wants the buyout to also include the neighbouring Muhoroni Sugar to give the alcohol manufacturer a competitive edge should the other milling firms start their own distillers.

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As part of the privatisation programme, the State is expected to officially kick off its divestiture from Agro Chemical in three months, Ashok Agrawal, the chief executive officer of the Muhoroni-based Agro-Chemical, told Business Daily in an interview.

“For us, more important is the privatisation of Muhoroni Sugar. Because, if Muhoroni Sugar runs competitively, we can partner with them,” said Mr Ashok.

“You know if we can get our own 50 percent of our requirement from the sugar factory, even if we buy at market rate, the freight is very low. We already have a pipeline, we can use the pipeline,” added the CEO, referring to the pipeline that connects Muhoroni Sugar, under receivership, with Agro Chemical.

Both companies were started and run by Mehta in the late 1970s, hence the existence of the pipeline.

Mehta Group, which also has a sugar factory and distiller in Uganda has in the past expressed interest in taking over Muhoroni Sugar.

“The privatisation of Agro Chemical has been discussed for a long time. We hope in the next three months, something will come out,” said Ashok.

Already, the privatisation team has visited the Agro Chemical plant in Muhoroni, Kisumu County, with the company now awaiting a financial decision.

Stand-alone distillers such as Agro Chemical came under pressure when Mumias Sugar, then the biggest miller, put up its own distilleries in 2015.

“When Mumias started production (of alcohol), we were hit badly. The prices of alcohol (at the time) … went down,” said Ashok.

This is because, unlike standalone distilleries, Mumias had its own molasses, power and biogas, all of which are practically free for them.

Standalone distillers have to buy all three, making the production of alcohol an expensive affair for them.

“So, we are looking for someone who can run this efficiently. We can say, we have something to tie up.”

To be competitive, millers have been diversifying by putting up their own alcohol plants, just as Mumias did before. This is also captured in the new Sugar Bill that is in the Senate having been passed by the National Assembly.

So far, Kibos Sugar is the only miller that also has a distillery. But should Rai Group’s West Kenya also put up their own that might condemn standalone distillers like Agro Chemical to extinction.

“So, unless we have some strategic alliance with someone, we will not do well,” said Ashok.

This comes at a time when the government has dropped an earlier plan to privatise five struggling millers and opted for a leasing model following opposition from local communities.

The plan has received approval from the Cabinet and the Treasury has set in motion the process to write-off the Sh117 billion debt they owe.

Rundown factories

The sugar companies owe the money in bank loans, tax arrears and penalties, farmers’ and employees’ dues. They owe banks Sh65 billion, Sh50 billion in taxes and nearly Sh2 billion in farmers’ dues.

The plan will also see rundown factories sold and land leased to the bidders picked to run Nzoia, Sony, Chemelil, Mumias, Muhoroni and Miwani Sugar companies to construct modern plants.

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Treasury Cabinet Secretary Njuguna Ndung’u said the proposed lease model shall be executed by unbundling the nucleus estate land and the factory land the millers own.

The Cabinet has also endorsed the publication of requests for proposals for the leasing of the five State-owned sugar mills.

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