Set back on revival of ailing Mumias Sugar as High Court cancel lease deal to Sarrai Group

KENYA – The High Court of Kenya has cancelled the multi-billion-shilling leasing tender for Mumias Sugar Company to Ugandan conglomerate Sarrai Group that was awarded in December 2021.

The group has subsequently been ordered to vacate the premises of the sugar milling company, with the court also removing PVR Rao as administrator with immediate effect.

The High Court ruling by Justice Alfred Mabeya brings to an end Sarrai Group’s grip on the troubled sugar mill, hardly four months after the takeover.

The conglomerate had secured a 20-year lease for the assets of Mumias Sugar, and promised to turn around the fortunes of the miller.

However, the move elicited opposition from other bidders citing lack of transparency in the processes.

“This court has considered the allegations made against the leasing process. Rao awarded the lease to the lowest bidder while there were higher bidders, without giving any justifiable explanation,” stated Justice Alfred Mabeya.

Sarrai’s bid at Ksh5.8billion (US$50m) is much lower compared to West Kenya Sugar’s that put in a Ksh36.7 billion (US$317m) bid.

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The judge highlighted that there was also no evidence KCB-appointed receiver-manager PVR Rao sought the advice of the Competition Authority of Kenya when he awarded the lease to Sarrai Group last December.

He further said Mr Rao did not explain how Mumias would repay KCB’s debt and those of other lenders.

According to the court, the leasing meant that Mumias Sugar would permanently remain an asset to KCB and would not be able to repay creditors.

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“A simple calculation would show leasing Mumias at Ksh 5.8billion for 20 years Mumias would perpetually remain under receivership and administration. It would permanently remain an asset under KCB and maybe a retirement home for Rao,” Justice Mabeya said.

“The lease does not promote the purpose of Mumias administration, it is this court’s finding that the lease meets the threshold to be interfered with. In the circumstances, the court will interfere with the Rao administration and cancel the lease,” ruled Justice Mabeya.

The court also ejected PVR Rao as Mumias Sugar administrator, replacing him with Kareto Mirima of K Consult Limited.

KCB Group placed the miller under receivership in September 2019 over an unpaid loan totalling hundreds of millions. The lender appointed Mr Rao as the receiver-manager, who was later made the administrator.

“The new administrator should call for and ascertain the claims of all unsecured creditors within 60 days and the amounts outstanding,” said the judge.

This means that the new administrator will have to kick start the lease process afresh, in consultation with all the secured and unsecured creditors.

Some of the other firms that had placed bids for Mumias include Pandal Industries, KE International (US) associated with Tumaz Tumaz Enterprises, Krumen Finances, New Mumias Sugar/Devki Group, Kibos Sugar and Fredrick Coombes/ Sucriere Des Mascareigmes Ltd.

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