8 weeks before the announcement on the indefinite closure of Mumias Sugar Company, the stock price of the company hit zero Kenya shillings at the NSE. The share price had a drastic drop from Kshs 1.04 to 0.00 on 22nd February 2017 surpassing the 10% daily price depreciation or appreciation limit set by the Nairobi Stock Exchange. In the subsequent days, the share price opened at the ‘magical’ number of 1.04 only to have a free fall to 0.00.
This may point to an insider trading pattern where dumping of the stock was happening by large holders prior to the closure. The curious part is the how the stock was allowed to trade daily after 10% depreciation in its price. The diagram below shows 4 weeks in which Mumias Sugar Company (MSC) traded at zero shillings.
At zero shillings, it means the stock was worthless. The holder of the stock could not sell it for anything. In some scenarios, companies do have their stock trade at lower rates than their real value (strong fundamentals). In such cases, the stock value only indicates perception and not real value. However, in Mumias Sugar’s case, the stock trades at Kshs 0.80 (today) but the real value is 0.00, since the company has ceased operations. The share certificate held by individuals and corporates has more value than the actual (physical) company.
The global sugar price had been on a two-year low and Kenyan cane farmers been hit by a drought. It’s not had to piece that local sugar supply would eventually succumb to competition from cheap imports and high local production costs. Now the eye turns on other sugar millers if they survive the onslaught of cheap imports. The bigger question is what would happened to power cost given local sugar companies contribute to the national grid – Mumias (35 MW), Kwale Sugar (18MW), Butali (12MW)
Data courtesy of abacus.co.ke