- Supermarket chain was in receivership for 4 years until 2010
- Company seeking 1.2 billion-shilling government loan
Suppliers of Uchumi Supermarkets Ltd. agreed to resume stocking Kenya’s only publicly traded retailer as the company’s biggest shareholder said it would ensure they received payment.
The 40-year-old company that was placed into receivership in 2006, from which it emerged in 2010, owes creditors including Nairobi-based lender KCB Group Ltd. a total of 3.6 billion shillings ($35.8 million). Over the past year, the company has closed down almost half its stores to cut costs and conserve cash.
After a meeting between management and government officials on Friday, suppliers agreed to convert half of the company’s debt into equity and to channel future payments through a jointly managed escrow account. In addition, Uchumi’s biggest shareholder, closely held lender Jamii Bora Bank Ltd., offered suppliers invoice discounting, or short-term loans based on purchase orders from the retailer.
“That has been sorted out so now we know that Uchumi will fly again,” said Samuel Kimani, chief executive officer of Jamii Bora, which owns 15.2 percent of the retailer. “The revival of Uchumi is very important. It means the value of the shares should go up.”
The stock fell to a record low of 3.4 shillings on May 19, bringing its decline to almost 70 percent so far this year -- the most of any of the 25 companies ranked in the FTSE NSE Kenya 25 index. Shares of the 1.37 billion-shilling ($13.6 million) company gained 8.7 percent on May 20 after the company said it was in talks with creditors for more time to pay off its debts.
Uchumi, which stocks general merchandise such as groceries, household electronics and clothing, has only 20 stores left after it shut down 17 others, including in neighboring Uganda and Tanzania. It is now dwarfed by closely held retailers such as Nakumatt Holdings Ltd., Tusker Mattresses Ltd. and Naivas Ltd.
The company plans to dispose off one of its biggest outlets to raise additional money and has also asked the government for a 1.2 billion-shilling bridging loan. Part of the proceeds will pay 800 of the smallest companies providing Uchumi with merchandise and owed a total 40 million shillings, according to Chief Executive Officer Julius Kipng’etich, who was appointed in September after his predecessor was fired.
The biggest threat to the recovery plan is a commercial court case by seven suppliers seeking to wind up Uchumi over a 300 million-shilling debt, according to Kipng’etich. No lenders can extend any facility to the chain while the matter is still before a judge.
“It is now a question of just unlocking that court case,” said Richard Rugendo, the chairman of the Association of Kenya Suppliers, a lobby group for some of Uchumi’s creditors.
Uchumi went into receivership in June 2006 with debts of 2.2 billion shillings, of which 957 million shillings was owed to KCB and PTA Bank. The receivership ended on March 4, 2010, after most of the company’s debts were cleared and others converted into shares. The company resumed trading on the Nairobi Securities Exchange on May 31, 2011.