Uchumi bets on Sh1.2bn State funds to stabilise, suspends search for investor
Kevian Kenya Ltd Managing Director Kimani Rugendo (left) and Uchumi Supermarkets CEO Julius Kipn'getich display a dummy cheque - of money paid out to some of the supermarket's suppliers - at Uchumi Hyper on July 14, 2016. PHOTO | SALATON NJAU
What you need to know:
- Chief executive Julius Kipng’etich said the company’s negative net worth made it difficult to get a deep-pocketed investor whose entry would have also caused a major dilution of existing shareholders.
- It became the second publicly traded company to have negative shareholder equity after national carrier Kenya Airways.
Uchumi Supermarkets has suspended indefinitely plans to raise Sh5 billion from a strategic investor, betting on the proposed injection of Sh1.2 billion from the government to continue operating.
Chief executive Julius Kipng’etich said the company’s negative net worth made it difficult to get a deep-pocketed investor whose entry would have also caused a major dilution of existing shareholders.
He added that a rights issue is also difficult in the context of the share price collapse to the current level of Sh4 on the Nairobi Securities Exchange (NSE).
“Getting a strategic investor now will be punishing existing shareholders,” Mr Kipng’etich told Business Daily. “We plan to use the government cash injection to get out of our current position.”
Details of the proposed government intervention are yet to be announced, with the cabinet having scheduled to discuss the matter last week.
If the Sh1.2 billion comes in the form of equity, the government’s stake will rise from the current 14.6 per cent and dilute other shareholders including Jamii Bora Bank.
The government says the cash injection will be accompanied by prosecution of former Uchumi executives –accused of mismanagement— based on the findings of a forensic audit report.
Scaled down its operations
The retailer has scaled down its operations significantly, closing several stores amid increased liabilities including supplier debt. Uchumi emerged with a negative equity in the half year ended December as total liabilities surpassed its assets by Sh181.8 million.
It became the second publicly traded company to have negative shareholder equity after national carrier Kenya Airways.
This means Uchumi’s shareholders would not get a cent if the company was to be liquidated, as some creditors have demanded.
The retailer’s debts stood at Sh6.3 billion in December against a total asset base of Sh6.1 billion, leaving it in the negative equity equivalent to Sh0.49 per share.
Uchumi is currently relying on the goodwill of creditors to keep operating, with the government saying its cash injection plan will also accommodate the interests of suppliers.
“The second point … is that suppliers will not be harmed by this re-organisation, and injection of cash. Great care has been taken to protect their interests,” State House Spokesperson Manoah Esipisu said in a statement announcing the government’s plan to rescue the retailer.
“The cabinet secretary (Adan Mohammed) and Uchumi management have consulted closely with them, and we are glad to say that whatever plan is presented would have their support.”
Uchumi, which has relied heavily on bank borrowings to stay afloat, is also selling assets to boost its financial position.
