Murder Part of Drama at Kenya Sugar Miller Up 50% in a Month

  • CEO left early, executive killed, work halted for maintenance
  • Investors may be responding to ‘positive milestones’: company

The company’s chief executive has fled the country. Its legal officer was killed in an unsolved murder case. Operations are shut for three months for maintenance and mounting losses mean it needs a bailout from the Kenyan government.

So why has Mumias Sugar Ltd.’s stock surged 50 percent over the past month on the Nairobi stock exchange?

Speculators feel emboldened to trade the stock, confident that even after posting annual losses since 2013 the state-owned sugar miller won’t be allowed to fail, Dominic Ruriga, a research analyst at AIB Capital Ltd., said by phone from Nairobi. “The only value is that government will never let it collapse.”

Mumias Chief Executive Officer Errol Johnston left Kenya in April, four months before his contract was due to end, the Nairobi-based Standard newspaper reported. Its head of legal services, Ronald Lubya, was killed at his home on June 4. The company, which announced a shutdown for maintenance in April, is negotiating a government bailout and needs 5.1 billion shillings ($50 million) to resume full operations, the Business Daily newspaper reported on June 19, citing new CEO Nashon Aseka. The company confirmed Aseka’s appointment in a statement Friday.

That may sound like grounds to avoid the stock, but Mumias is a favorite among local investors. Despite a weighting in the NSE All Share Index of just 0.1 percent, the sugar miller accounted for 2 percent of all trading in the first quarter of 2017, rising to as much as 5 percent in June, figures from the exchange show. Were it not for its state backing, Mumias could have been delisted under the bourse’s rules for being technically insolvent and after posting full-year losses since 2013.

While foreigners are responsible for the majority of trading on the Nairobi bourse, Mumias is different. In the week ended June 16, Kenyans bought and sold 94 percent of the 9.5 million Mumias shares traded, said Doris Mwangi, research analyst at Nairobi-based ApexAfrica Capital Ltd.

‘Positive Milestones’

Mumias is a highly liquid penny stock trading on the exchange’s main board, which adds to its allure. Almost 80 percent of its shares -- about 1.5 billion -- are in the public float, and buying the minimum lot of 100 units cost as little as the equivalent of $1.26 as of June 20. Buying the smallest possible number of shares in blue-chip Safaricom Ltd. would cost about 18 times as much.

Investors may be buying the stock because of positive developments, such as the new CEO, the negotiation of government bailout funds and the mill’s reconnection to the national power grid, said Moses Owino, the company’s head of corporate affairs.

“So there is optimism in the workforce and I think this has translated into the share price,” he said by phone on Thursday. “These are some of the milestones that people have picked which has driven Mumias share price higher.”

The stock rose as much as 8.7 percent Friday, before closing 4.4 percent lower.

Some investors have reaped returns of 92 percent within the past two weeks, said Kenny Karanja, an equities trader at Dyer & Blair Investment Bank in Nairobi.

“It is one of the only stocks that really reacts to new information,” he said. “Institutional investors cannot justify a purchase of Mumias to their shareholders, so they avoid it.”

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