Star Africa technically insolvent

Published: 01 July 2013
CASH-SRAPPED Star Africa Corporation is technically insolvent as its liabilities far outstrip assets.

Star Africa will thus sell its investment in Botswana-based associate Tongaat Hulett and Blue Star Logistics to clear the debts.

Chairman Mr Joe Mutizwa indicated in the financial results for the year to March 31, 2013, during which the company suffered a US$16,4 million loss, that liabilities outweighed assets by US$10,4 million as at March 31 2013.

"As at that date (March 31) total liabilities exceeded assets by US$10,4 million and current liabilities exceeded current assets by US$22,2 million." A company is technically insolvent if the value of its liabilities is greater than that of its assets, which means it has negative asset value and would not be able to fully compensate those it owes in the event of it winding down.

The borrowing powers of the group as stipulated in the Memorandum of Association had been exceeded by US$29 million. The company recently agreed with creditors and lenders that it would not make payments for six months in order to dispose of assets worth about US$10,4 million to retire debts.

The balance from the US$19,7 million owed to creditors and lenders would then be paid over a period of 36 months for unsecured lenders and creditors and 18 months for the secured lenders and creditors of the troubled company. Interest to secured creditors and lenders would be charged at the lower of rate charged by an individual creditor or 10 percent per annum and the lower of the rate charged by unsecured lenders or creditors or 12 percent per annum.

Retired Justice Smith, who chaired the scheme of arrangement meeting with lenders and creditors, agreed to stay payments for six months, the decision was taken when some creditors wanted to sue the company and proceed to attach its property.

Star Africa would dispose of Blue Star Logistics and its 33 percent shareholding in Tongaat Hulett Botswana Limited under the scheme of arrangement that would also see the firm installing a new refinery at its Harare plant. Star Africa has also made arrangements with raw sugar suppliers Zimbabwe Sugar Sales for flexible payment plan where the company only pays after selling to its clients.

The company's operations have been weighed down by serious working capital constraints, old equipment and competition from often lower priced imported sugar. After completion of its sugar refinery plant upgrade and when it builds capacity to meet demand Star Africa intends to enforce annexure 7 of the Sadc trade protocol to prevent "dumping" of refined sugar on the local market.

Mr Mutizwa said a financier had already been secured for the Harare refinery plant upgrade and that the renewal would enhance operational efficiencies and volumes.

"On completion of the plant upgrade the refinery will be producing bottlers' quality sugar that will be sold to local and international markets. Management believes that the company will be able to reclaim the market share which, in the current domestic supply constraints, is dominated by imports," he said.

The plant upgrade would increase the company's production capacity from the current 300 000 tonnes per day to 600 000 tonnes per day while improving the sugar yield.

Star Africa said the loss for the period to March 2013 was as a result of the closure of its Harare refinery plant after ZSR stopped raw sugar supplies when Star Africa failed to pay. This reflected in the group's revenue plunging from US$53 million last year to US$24 million in comparative period this year.
- herald

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