Uchumi is sinking deeper into insolvency as it awaits bailout

I am well aware that the obsession of the moment in this country right now is politics.

But I have decided to return to the issue of the government-backed bailout of Uchumi Supermarkets Ltd.

I am compelled to do so in reaction to comments and inquiries by suppliers and manufacturers who, in response to an article I penned here a few weeks ago, called to recount to me the tribulations they have had to endure since the retail chain collapsed several months ago.

INFORMATION

Struggling businesses have been left to suffer for mistakes not of their own making.

Unable to service bank loans, they find themselves tottering towards insolvency.

Worse, the flow of information on the bailout is very slow.

Uncertainty reigns because the process of reviving the troubled supermarket is not being handled transparently.

We have allowed the parties involved — namely; the National Treasury, Ministry of Trade, the management and directors of the company and the much-touted strategic investors — to take suppliers and manufacturers round in circles for too long.

Why is it taking so long to conclude a deal with the strategic investor?

STRATEGIC INVESTOR
I recently came across correspondence dating as far back as June, in which Uchumi wrote to The Treasury to inform them that the board and management had reached a milestone in closing a deal with a strategic investor.

Other correspondence also shows that Uchumi’s board received a formal term sheet from the said strategic investor — a party by the name Kuramo Capital Management Ltd — way back in May this year.

The involvement of a wealth management company headquartered in New York — and which had reportedly agreed to make an equity investment of Sh3.5 billion in the troubled retailer — in the transaction was top secret until the article I did several weeks ago.

BAILOUT

In the local market, the group is famous for the role they played in the restructuring of the prominent local investment firm Trans-Century.

If you have been following the Uchumi bailout deal closely like me, you will recall that the government pumped in Sh500 million, which was part of a Sh1.8 billion facility approved by the Cabinet several months ago.

I have seen correspondence showing that, as far back as July, The Treasury wrote to Uchumi’s management, giving them the assurance that the remainder of the bailout facility would be released.

SALARIES
According to the plan, Sh700 million was to be injected in Uchumi’s Kenya operation with the remaining going to its Tanzania and Uganda subsidiaries.

The snag is, The Treasury is yet to release the money.

As the parties continue to dither and procrastinate, Uchumi is sinking deeper into financial doldrums.

It needs money to pay salaries, rent and stocks.

There have been times when things got so bad, forcing the company to withdraw money for the suppliers’ escrow account to pay salaries.

KCB
The hole in the company’s books is getting bigger and bigger as it awaits a move from the strategic investor and the government.

Worse, even the planned bridging finance facilities are not coming through.

Remember that apart from the Sh1.3 billion expected from the government, Sh300 million was expected to come from Kenya Commercial Bank (KCB) in the form of a bridging finance facility.

However, this money was to be released conditionally, upon execution of the term sheet by the strategic investor.

It cannot come through because the strategic investor is yet to sign the term sheet.

SHAREHOLDING
Vultures must be hovering around the carcass, just waiting to pounce the moment they see that the government has committed to pump in billions into the company.

The strategic investor must first put his money where his mouth is if taxpayers’ money is to be committed to revive Uchumi.

Mark you, government shareholding will invariably be diluted to almost nothing if the investor pumps in the Sh3.5 billion.

In the current circumstances, the realistic alternative for the government is to apply the well-known playbook that governments are increasingly resorting to when called upon to bail out companies: Kick in equity to allow you to acquire majority control, throw out the existing management and board and bring in an international supermarket chain to run the company under a management contract.

STAKE
Secondly, do a bond that you can then on-lend to the supermarket chain and make it possible for the company to borrow at a risk-free rate.

You can also kick in guarantees to suppliers in the whole deal.

After four years, you can then commence the process of selling your stake to the private sector progressively to below majority.

Let us all support the bailout plan.

[email protected].