Uchumi Supermarkets has opened talks with its suppliers in a bid to turn the debts owed to them into shares.
The creditors on Tuesday agreed to oppose an ongoing insolvency case against Uchumi filed by five suppliers. The retailer hopes the conversion will ease the debt load on its books.
“We have agreed to have the debt restructured as we are opposed to winding up. We have given a mandate to our lawyers to append our names in opposing the (winding up) petition because everyone will be a loser. We can bring it (Uchumi) back like we did previously,” said the Association of Kenya Suppliers chairman Kimani Rugendo.
Ceccagnoli Italiano Ltd, an Imports and supply firm, has filed a petition to wind up Uchumi over its debt. The suit attracted Kenblest Group, Githunguri Dairy, Star Times and Nairobi Bottlers who brought a collective claim of Sh315 million from the retail chain. The case will be heard on Thursday.
The retailer’s debt load of Sh6.3 billion against a total asset base of Sh6.1 billion has crystallised into a negative equity of Sh181.8 million, or Sh0.49 per share as per half-year financial statements to December. This put’s the firm in a negative equity position
Uchumi owes suppliers Sh3.6 billion with another Sh2.5 billion debt held by banks with charged assets.
The supermarket’s CEO Julius Kipng’etich said that the suppliers stand to lose most if they close Uchumi.
“The implication of hiring a liquidator is they might get nothing as a lot of the assets are charged to banks. The government will be paid first, then the employees and those with secured credit,” he said.
He said they had decided to meet the suppliers to convince them that they “had jumped the gun” and to offer them a roadmap for settling the debt.
“The government is willing to put in money, the asset sales are beginning to trickle in, so we are asking, why are you guys (suppliers) impatient when everything is picking up and putting in another roadblock,” he said.
Mr Kipng’etich said that Uchumi had already sold Ngong hyper at Sh1.4 billion and had received “interesting offers” for the Kasarani property despite it being the subject of a suit.
The Lang’ata Supermarket is charged to United Bank of Africa (UBA) under a Sh250 million short-term facility to pay suppliers. The bank says it is willing to offer more support if the winding up suit is dealt with.
Mr Rugendo said he had met government officials who had indicated that the Cabinet was reviewing a proposal to bail out Uchumi by up to Sh2 billion.
Another source of revenue to retire the debt would come from a strategic investor willing to pump in excess of Sh5 billion in exchange for a controlling stake. Mr Kipng’etich said they had narrowed down to three investors from a pool of 36 that expressed interest.
The suppliers, shareholders, the government, banks and the management will run an escrow account that will control the retailer’s cash flows and avoid saddling it with new debt. The supermarket chain has also agreed with the suppliers on a deal to resume supplying goods.
According to Mr Kipng’etich, Uchumi requires only about 18 per cent of the revenue to keep it running while the revival committee can decide on how suppliers will be engaged and paid on time.
“A few weeks ago we reached a crisis, and we had to make a tough call to buy in the open market in cash to keep the store alive. If we came to you (suppliers), you would have taken the cash as debt. So we are working on a long-term solution,” he said.