Illovo Sugar (Malawi) Plc board is considering using rights issue to settle its outstanding debt of over K32 billion accumulated over the last two years.
The company’s finance director, Lekani Katandula made the revelation on Thursday in Blantyre during the company’s 53rd Annual General Meeting.
Katandula said they will make a decision on the request made by the company’s shareholders to use right issue at its next board meeting in February 2018.
“Shareholders are keen to see a quick resumption of dividends and management was quick to respond that we are not currently in a position to resume [paying] dividends because of the relatively high debt levels we are still carrying in this company,” explained Katandula.
He added “As at end of August 2017, those debts amounted to just over K23 billion. Now it amounts to just over K32 billion because by this time of the year, we will have produced a lot of sugar that is yet to be sold and will be selling over the next nine months so we have a high level of inventory that is financed by those debt levels. But as we sell the sugar, those levels should have come down.”
Katandula said while it is the company’s expectation to reduce the debt to K20 billion or less by the close of the 2018 financial year next August, the debts have accumulated because of a substantial decline in world markets coupled with significant drop in domestic sugar sales.
“Typically, in previous years, we would sell around 169 000 tonnes of sugar in a year but two years ago, that quantity dropped significantly to around 129 000 tonnes of sugar. So, instead of having cash in a bank, we were left with a substantial amount of sugar stocks rather that gave rise to debt levels alongside a significant fall in world market prices in exported sugar to five-year low in September 2015 from 35 cents per pound to 11 cents per pound.
“But the market has started to recover a little bit to around 15 cents per pound and more importantly the domestic market is recovering and our expectation is that by the end of this year, we should be at our normal levels of around 169 000 tonnes,” he said.
Illovo Sugar (Malawi) Limited shareholder and secretary of Minority Shareholders Association, Frank Harawa, said shareholders believe that the best way to get out of this situation and for shareholder to start enjoying health dividends is by rights issue.
“We have requested the company to do a rights issue because we believe this is the best way to solve this financial issue and use some of the money for some developments and issuance of dividends, which we have not received since 2016,” he said.