‘Vultures’ lining up to devour beloved national asset Uchumi

At the weekend, I visited the Uchumi Supermarkets branch at Capital Centre, on Mombasa Road.

It was a depressing experience, to say the least. The shelves were empty.

I then drove all the way to Ngong Road to witness the state of affairs at the chain’s largest branch. The spectacle was even more depressing.

FINANCIAL PROBLEM
Clearly, a national brand — what used to be a selling outlet for more than 80 percent of locally manufactured goods — is on its deathbed.

Since the government is the single-largest shareholder in the company, taxpayers’ money is at risk if it collapses.

Indeed, Uchumi’s impending implosion is bound to inflict widespread financial distress.

Mark you, Nakumatt Supermarkets, an even bigger selling outlet for manufacturers, is also deep in financial doldrums.

SOLUTION
But is anybody making a serious effort to address Uchumi’s woes?

Is the retailer likely to be revived anytime soon? I don’t think so.

When you closely follow what has been going on, the distinct impression you get is that neither the government nor the Uchumi management and board —and not even the strategic investor touted as having committed to pump Sh3.5 billion into the retail chain — is treating the matter with any sense of urgency.

BAIL OUT
Of the Sh1.8 billion that the government promised to give in shareholder loans, only Sh500 million has been disbursed.

The balance, which was to be disbursed to the company several months ago, is yet to come through.

The strategic investor — an entity by the name Kuramo Capital Management — were to conclude negotiations by signing a document known in commerce jargon as a ‘term sheet’ with the board several months ago. They haven’t.

From what I gather, the National Treasury now says the money will not be disbursed until the term sheet is signed.

RESTRUCTURE
It is a very confusing situation indeed, because the Uchumi board has reported that the strategic investor insists they will only put pen to paper upon securing written assurances from the government that the shareholder loan will be disbursed in full.

At one time, the understanding was that the loan would only be disbursed subject to production — by the Uchumi management and board — of a restructuring and turnaround plan acceptable to the Treasury.

But it is understood that when the Uchumi management presented the plan to the Treasury recently, they not only introduced other conditions but also insisted on the document being channelled to them through the Ministry of Trade and Industry before they could release the money.

ASSETS
It is also understood that the Treasury has raised issues with the ownership structure of a post-turnaround Uchumi.

Call me a conspiracy theorist if you like but I see the hand of underground operators who are quietly manipulating the situation to force Uchumi into the hands of a vulture fund-type entity whose only interest in the retailer is an opportunity to strip it of its assets.

I say so because, when you study the turnaround plan, it is premised on the assumption that Uchumi will have to take out more loans.

For instance, under the funding plan, KCB is supposed to extend to Uchumi bridging loans amounting to Sh800 million.

DEBT

Since when did we start bailing out companies in financial distress by saddling them with more debt?

And how much stake in Uchumi are we giving to the strategic investor for the capital injection of Sh3.5 billion?

Methinks we should insist that the retailer be valued by an independent reporting accountant as a going concern before it is given away.

And if the government is, indeed, serious about saving Uchumi this time round, it must go by the well-known playbook applied by other governments in a similar situation and that runs as follows:

BOND
First, kick in equity to allow you to acquire majority control.

Secondly, throw out the management and board and bring in an international chain to run the firm under a management contract.

Thirdly, to ease liquidity for the company, 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.

After three or four years, you can then commence selling your stake progressively to below majority.

What Uchumi needs is a comprehensive bailout plan. Exceptional times call for exceptional measures.

I have not seen anything exceptional in the so-called turnaround plan. If urgent action is not taken, Uchumi will collapse.

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