Illovo Sugar (Malawi) plc has unveiled plans to borrow $45 million (about K79 billion) with an option of a further $15 million (about K26 billion) from Sucoma Holdings Limited, a company which owns 76 percent stake.
But industry watchers say the transaction needs independent oversight to protect the shareholders because the deal involves related parties.
In a statement issued by company secretary Maureen Kachingwe yesterday, the Malawi Stock Exchange (MSE)-listed sugar manufacturer said the loan is meant for the company to settle its foreign exchange liiabilities following its limited sugar exports and foreign exchange scarcity in the country.
Reads the statement in part: “Given these challenges, Illovo Sugar (Malawi) is unlikely to generate or source adequate foreign currency to service the obligations in the short to medium-term.”
But the decision to borrow from a related company has attracted mixed views from financial market experts and investors who fear the loan could not be priced at market terms without independent oversight.
Stockbrokers Malawi Limited equity investment analyst Kondwani Makwakwa said in an interview yesterday that the loan will immediately help Illovo to sort out foreign exchange-related obligation pressures by offering timely liquidity support.
“However since the loan is from a related party, it is crucial that it is priced at market-aligned terms and guided by independent oversight to ensure fairness and protect shareholder value,” he said.
Stock market investor and financial expert Brian Kampanje said the purpose of the loan does not justify the borrowing, warning that the transaction is risky because the loan still exposes the company to further foreign exchange losses due to weakening exchange rate.
He said: “The purpose of the loan does not justify the borrowing because the financial statements of the company show sundry payables as the biggest chunk of the current liabilities of the company. There is no current going concern threat to warrant such huge borrowing.”
Kampanje said much as interest is not charged, there are hidden fees whenever dividends are declared, a situation he added requires thorough scrutiny at an extraordinary general meeting (EGM).
MSE chief executive officer John Kamanga said yesterday that being a related party transaction, it calls for disclosure to the shareholders and then an EGM should be convened for the shareholders to make a decision on the same.
“This is just the announcement. However, the circular containing the salient details of the transaction will be sent to shareholders of the company to enable them make an informed decision,” he said.
Minority Shareholders Association of Listed Companies secretary general Frank Harawa said they are meeting board and management of Illovo Malawi today on this matter to seek clarity.
But Illovo Sugar (Malawi) plc board chairperson Jimmy Lipunga said the company is obliged to comply with stringent legal and regulatory provisions pertaining to related party transactions, adding that these were rigorously scrutinised by the board of directors, including independent professionals.
“An independent firm of chartered accountants was engaged to independently certify the justification for the contemplated related party transaction, which it did after due process.
“The MSE as a regulator of listed companies was approached for clearance and approval. I can therefore confirm that all governance protocols and obligations have been fulfilled,” he said.
Illovo Sugar (Malawi) plc, whose market capitalisation on the 16-counter MSE stands at K1.2 trillion, had its share price trading at K1 791.28 at the close of trading yesterday.
Apart from Sucoma Holdings Limited, Old Mutual Malawi Limited owns 11 percent while the public controls the remaining 13 percent stake.
