The Capital Markets Authority has blocked a bid by Mumias Sugar Company to raise Ksh4 billion ($38.8 million) in additional capital until an audit of the company’s finances is done.

Sources told The EastAfrican that the regulator also plans to enforce disciplinary action against Kenya’s largest sugar miller.

“Mumias Sugar has some audit issues pending before they do a rights issue. CMA has some enforcement actions to take against the company,” said a source.

The company’s financial position has left farmers and workers with unpaid dues, while the government injected Ksh1 billion ($10 million) into the firm last year. Another bail-out of $30 million pledged by Deputy President William Ruto is yet to materialise.

Mumias chairman Dan Ameyo confirmed that the CMA was carrying out an independent audit to determine whether the company’s financial statements were a true reflection of its status, and if the company were being run properly.

Mr Ameyo said that even if the CMA allowed it to raise capital, the company would not proceed with the cash call because of volatile market conditions. He added that the board is looking for other funding options.

“We cannot disclose the alternatives now. The board will meet next week to decide on the way forward,” Mr Ameyo told The EastAfrican.

Last year, he had hinted that the company was in talks with the government for an additional Ksh2 billion ($19.4 million) bailout package, besides the Ksh1 billion ($9.7 million) it had been given earlier.

The Treasury, which owns a 20 per cent shareholding in the company, said it has not allocated money for the rights issue in the next budget (2016/2017).

“We did make a commitment in terms of the rights issue, but they must get CMA approval and then talk to shareholders to take up their rights. But they have not communicated to us in writing so that we can prepare ourselves and know whether it is this financial year (2015/2016) or next financial year (2016/2017),” said Henry Rotich, Treasury Cabinet Secretary.

The cash call was part of a string of measures proposed by the government in March 2015 to turn around the performance of the company, whose losses increased to Ksh2.26 billion ($21.92 million) for the six months to December 2015, from Ksh2.07 billion ($20.07 million) in the same period the previous year.

Other measures included a Ksh1 billion ($9.7 million) bailout package from the State to pay off farmers for sugarcane deliveries, retrenchment of 300 workers, an overhaul of the entire management team, and the replacement of about half of the board of directors.

Last year, the Treasury deleted, from its revised budget estimates, a provision for Ksh5 billion ($48.5 million) in earnings that it would have made from selling its rights in both Mumias Sugar Company and the National Bank of Kenya.

READ: Treasury retreats on plan to sell shares in Mumias, National Bank

The government had initially opted not to take up additional shares in the bank and the sugar miller in order to use the proceeds to finance the budget deficit, estimated at Ksh566.95 billion ($5.49 billion) in this fiscal year.

Mumias said the proliferation of millers in western Kenya had created competition for cane in the region, but the impact of financial pressures on farming led to inadequate inputs to obtain maximum cane yields.

Mumias’s stock on the NSE has fallen to a low of Ksh1.4 ($0.01) per share from a high of Ksh49.5 ($0.48) during the second IPO in December 2006.

The government sold its shares in the company for the first time during the IPO in 2001, reducing its shareholding in the company to 38.04 per cent.