Illovo Board chairperson, Jimmy Lipunga (centre, above) addressing the shareholders
* The company was facing acute foreign currency liquidity constraints due to both limited exports and broader shortage of forex in the market
* Given the challenges, the company was unlikely to generate or source adequate foreign currency to service its obligations in the short to long term
By Duncan Mlanjira
Illovo Sugar Malawi Plc shareholders voted in favour of borrowing US$45 million from majority shareholder, Sucoma Holdings Ltd to help the company avert a foreign currency related credit crunch and escape possible effects of a devaluation.
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The company held an extraordinary general meeting (EGM) at Sunbird Mount Soche in Blantyre on Tuesday where Board chairperson, Jimmy Lipunga appraised them that the company was facing acute foreign currency liquidity constraints due to both limited exports and broader shortage of forex in the market.
And given these challenges, the company was unlikely to generate or source adequate foreign currency to service its obligations in the short to long term adding that the funds will be used to pay part of a chunk of Illovo’s accumulated debt of about US$72 million — mostly to foreign-based suppliers, including sister companies.
The circular to the shareholders indicates that Illovo currently has an inter-company trade payable of 1.3 billion South African rands (US$72 million) to its related parties and fellow subsidiaries of ABF Plc, ABF Sugar (Pty) Ltd, Illovo Sugar Johannesburg and Illovo Sugar Marketing Service Ltd.
It said there was a further option of accessing additional US$15 million, but by paying off the bigger proportion of the debt, Illovo will be unencumbering its operating costs most of which are US-dollar denominated due to the need for costs of seasonal imports of equipment maintenance parts, farm inputs, raw materials, among others.
It indicated that the trading balance has accumulated over a period of approximately four years due to the inability to source the forex as in the past, Illovo’s sugar exports were low in order to service the local market — aggravated by illegal smuggling of the product and sugar hoarding by unscrupulous traders to create its scarcity and inflate its price on the market.
“We thought of restructuring our working capital with the goal of reducing the burden of US-denominated debts and interest,” Lipunga said. “We think this is a good alternative compared to converting our debt into equity which carries the risk of share dilution.”
Illovo has an extensive business partnership system
Without much ado, the shareholders gave their vote of approval after being satisfied that the loan will provide immediate forex liquidity to enable the settlement of the significant proportion of the group’s outstanding inter-company payables.
Representative of Illovo’s minority shareholders Frank Harawa, immediately welcomed the borrowing resolution, saying it reflected innovation by the company’s management to safeguard operations and bottom line.
“It’s commendable that management is thinking outside the box in how to settle its debts in foreign currency,” said Harawa, before the shareholders went to vote that earned 88% from the threshold of 75% of votes needed to pass the resolution.
Lipunga applauded the shareholders for their understanding of the situation at hand, saying strong partnership means minority and majority shareholders should move side by side for the growth of the business.
Nchalo Estate mill
Sucoma Holdings Ltd is Illovo Sugar Malawi’s Plc’s majority shareholder with a 75.98% stake, Old Mutual Life at 10.87% while the public and institutional shareholders own 13.15% of Illovo’s business.
Illovo is an industry giant, employing over 10,000 people at its two sugar mills at Nchalo in Chikwawa and Dwangwa in Nkhotakota, whose corporate office is in Limbe.
These operations have been at an elevated risk in recent years due to Malawi’s foreign currency shortages and the impact of tropical cyclones and climate change on Illovo’s sugar production and milling.
After each harvesting season, the mills at both Nchalo and Dwangwa undergo extensive maintenance, whose spare parts are procured from outside the country and the company is also challenged due to vandalism and theft of its irrigation equipment — as well as theft of its cane at Nchalo estate.
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