Struggling sugar processing company, Starafricacorporation (Starafica) is pinning its hopes on a deal where the National Social Security Authority (NSSA) is set to convert its $11,5 million loan in the company into equity.
NSSA, the statutory corporate body tasked by the Government to provide social security, will also inject a further $1,5 million as it tries to extract the ever elusive sweet spot in Starafrica.
In an annual general meeting notice published in the papers this week, Starafrica said one of the special resolution will be the conversion of NSSA’s loan into equity.
The transaction with NSSA “will be in fulfilment of the terms of the NSSA Secondary Scheme of Arrangement passed by members on November 17, 2016,” said Starafrica.
“NSSA will receive 1 533 333 333 ordinary shares with a nominal value of $0,0001 each at a conversion price of $0,0075 per share in respect of a loan of $11,5 million.
The conversion price in relation to $10 million of the loan will increase by 10 percent for each year that interest is paid or accrued, up until at the time of conversion, while the conversion price applicable to the $1,5 million of the loan, which is new funding, shall be $0,0075.
“The new funding in the form of $1,5 million shall be subject to a claw back from the Company’s shareholders who may wish to reduce the impact of dilution resulting from the potential conversion. Shareholders shall have an option to claw back their proportionate entitlement of the new funding loan from NSSA within a period of 90 days from the date that this resolution is passed,” said the statement.
The question, however is why NSSA is still investing in Starafrica, a company that has failed to give a return for years?
Responding to emailed questions by Business Weekly, NSSA’s General Manager Liz Chitiga said in accepting the conversion of the loan, NSSA and other shareholders considered, among other things Starafrica’s potential for employment creation for the sugar industry.
Chitiga said NSSA had also considered the company’s potential to reduce the country’s dependency on imports of sugar for industrial purposes.
NSSA also considered “increased uptake of raw sugar which creates markets for suppliers, including small scale cane farmers in the south-eastern lowveld.”
Asked to comment on what value NSSA sees in Starafrica to warrant continued investment in a company that has been recording losses for the better part of the dollarisation era, Chitiga said: “Starafrica is positioned well to play a leading role in the sugar refinery industry and to improve the fortunes of farmers and other players in the sugar industry.”
“We believe the fortunes of the company are promising, considering their improved performance for the year ended March 2017 that reflected a positive operating performance. This shows that it is a business on the mend and we expect the trend to continue on the back of support from stakeholders such as NSSA and other creditors,” said Chitiga.
Post-acquisition capital support, NSSA says it has put in $11,6 million and intend to provide an additional $1,5 million.
Chitiga said NSSA was not the only organisation which still has confidence in the sugar producer as other lenders to the company had also shown their confidence by agreeing to the scheme.
We are complementing “the positive support creditors extended to Starafrica by accepting conversion clauses in their schemes, and the commitment of lenders to provide much needed working capital on favourable terms that spoke to the confidence of Starafrica’s stakeholders,” said Chitiga.
Nothing sweet in results
The battle to stabilise the sugar dealer is however proving to be difficult. In its results for the year ended 31 March 2017, the company reported a loss of $5,9 million and as at that date its total liabilities exceeded total assets by $1 million while current liabilities exceeded current assets by $8,9 million.
In addition the borrowing powers as stipulated in the company’s Memorandum and Articles of Association had been exceeded by $62 million as at year end.
Balance sheet issues aside, the market Starafrica used to dominate has since been taken over by Triangle through the Hullets sugar brand. Triangle also happens to be the supplier of raw sugar to Starafrica, which gives the former a competitive advantage.