Illovo to borrow $45 million to ease debt, shield operations from dollar shortage

Illovo Sugar Malawi Plc will borrow US$45 million from its majority shareholder, Sucoma, to ease its debt burden and protect operations from the impact of a possible currency devaluation.

Chairman Jimmy Lipunga told shareholders at Tuesday’s Extraordinary General Meeting (EGM) in Blantyre that the funds will pay down part of Illovo’s accumulated US$72 million debt, mostly owed to foreign suppliers and sister companies.

He said a further option of accessing  US$15 million is available, but by paying off the bigger proportion of the debt, Illovo will be unencumbering its operating costs, most of which are US-dollar-denominated due to the need for seasonal imports of equipment, inputs and raw materials.

Malawi’s worsening shortages of US dollars resulted in Illovo’s inability to service its suppliers, he said. The situation led to Illovo’s debt and related interest, accumulating.

“We thought of restructuring our working capital to reduce the burden of US-denominated debts and interest. We think this is a good alternative compared to converting our debt into equity which carries the risk of share dilution,” said Lipunga.

A circular to shareholders released at the EGM says Illovo owes its related parties and fellow subsidiaries of Associated British Foods (ABF Plc), ABF Sugar Pty, Illovo Sugar Johannesburg and Illovo Group Marketing Services an equivalent of  US$72 million or 1.3 billion rands. The funds were used by sister companies to buy essential machinery and services on behalf of Illovo Sugar Malawi.

“The trading balance has accumulated over approximately four years due to the inability to source sufficient foreign exchange in the market and through exports. The purpose of the shareholder loan is to settle this accumulated intercompany trade payable, which Illovo Sugar (Malawi) plc has been unable to clear due to persistent foreign currency constraints,” reads the circular.

It says the newly authorised loan will provide immediate FX liquidity to enable the settlement of a significant proportion of the group’s outstanding intercompany payables.

Lipunga hoped that the Reserve Bank of Malawi (RBM) would soften its grip on foreign currency management rules to create room for Illovo’s forex-related operations.

Frank Harawa, a representative of Illovo’s minority shareholders, immediately welcomed the borrowing resolution, saying it reflected innovation by the company’s management to safeguard operations and the bottom line.

“It’s commendable that management is thinking outside the box in how to settle its debts in US dollars,” he said.

Sucoma Holdings Limited is the majority shareholder in ISM with a 75.98% stake, Old Mutual Life 10.87% while the public and institutional shareholders own 13.15% of Illovo’s sweetness business.

Illovo is an industry giant, employing over 10,000 people at its two sugar mills in Chikwawa and Nkhotakota and Limbe corporate office. These operations have been at an elevated risk in recent years due to Malawi’s foreign currency shortages and the impact of tropical cyclones and climate change on Illovo’s sugar production and milling.