Nakumatt credit rating slashed as debt load grows into billions
What you need to know:
- Global Credit Ratings downgraded Nakumatt long-term rating to BB- from BB indicating a weakened ability to meet outstanding financial obligations.
- The GCR disclosed it did not factor in plans by the regional retailer to sell a minority stake to new investors during the rating process as previous such plans had fallen flat.
Kenya’s largest retailer Nakumatt has been accorded a credit rating downgrade following a spike in debt level pointing to an increasingly uneasy retail market.
South African Global Credit Ratings (GCR) downgraded Nakumatt long-term rating to BB- from BB indicating a weakened ability to meet outstanding financial obligations.
“The rating downgrade reflects the notable deterioration in Nakumatt’s credit risk profile. Growth of the business has been highly leveraged, with the ever-growing working capital and capex requirements having been largely funded through short-term debt,” said GCR in the credit report.
The rating agency noted that Nakumatt debt burden had quadrupled in the last four years to Sh18 billion up from Sh4.7 in 2012 “placing unduly high pressure on the group’s gearing and liquidity position, with funding limits having largely been reached.”
The GCR disclosed it did not factor in plans by the regional retailer to sell a minority stake to new investors during the rating process as previous such plans had fallen flat.
Nakumatt was able to close a share sale last month following more than five years of back and forth, giving it much-needed funds to settle some of its debts.
The retail chain is majority owned by the Shah family (92.3 per cent). The balance is owned by Hotnet Ltd — a company associated with businessman John Harun Mwau.
Mr Mwau is reported to have sold his 7.7 per cent stake in the retailer last month.
Nakumatt plans to restructure its remaining debt facilities to longer maturities while sourcing additional borrowing to settle long-overdue creditors.
Following the share sale, the retailer has returned to its expansion path with two new branches in the last two weeks. It opened branch number 63 at Nextgen Mall on Mombasa Road and another in Rwanda last week. It has 47 branches in Kenya, 3 in Rwanda, 5 in Tanzania and 9 in Uganda.
The balance sheet restructuring and cost control measures taken by Nakumatt are expected to support its profitability.
The retailer is bedeviled by problems that have hit its peers in the Kenyan retail market forcing the private company to issue a public statement in September concerning its financial health after social media storm over empty counters.
Uchumi Supermarket, the only listed retailer, is currently waiting for a Sh500 million cash bailout from the government following a plunge into loss territory accompanied by a debt pileup.
Mid this year, Uchumi survived a winding up suit and is currently battling headwinds such as frequent stock-outs, Sh3.6 billion suppliers’ dues and debts to lenders amounting to Sh2.5 billion as at half year December 2015.
Karrymatt supermarket, associated with businessman George Kariithi, was named among companies said to have bad loans with Housing Finance in court papers filed by a former employee of the bank. The retail outlet located on Nairobi’s Moi Avenue is claimed to have defaulted on a Sh10 million loan with the bank.
Botswana retailer Choppies has disclosed that the seven Ukwala stores it took over in March are technically insolvent to the tune of Sh63.8 million.
