Uchumi Supermarkets to know strategic partner this week

Uchumi Supermarket

Uchumi Supermarkets will receive a report this week from advisers lining up potential strategic investors, the chief executive said.

The retail chain will use the report to draw up a timeline for a much-needed capital injection and recovery plan.

The firm has been battling to stay afloat since it fired its previous CEO in June for “gross misconduct”, launched an audit into where cash from a rights issue had gone and reported an annual loss of Sh3.6 billion.

New Chief Executive Julius Kipng’etich was appointed five months ago to rescue Kenya’s only listed supermarket chain. He has overseen the closure of its loss-making Ugandan subsidiary, more than halved the workforce and announced land sale plans. “The big decisions have been implemented. Injection of capital is the only piece remaining. We are looking for somebody who wants to build on the Uchumi name, its current locations and the goodwill it has as a 40-year old company,” he said in an interview with Reuters.

Uchumi secured shareholder approval in January for a recapitalisation of up to Sh5 billion to help turn the firm around and appointed Pamoja Capital to lead the search for a potential investor.

“Pamoja Capital is working on inviting a new shareholder so this week they will give us feedback and then we shall draw a timeline,” Kipng’etich said. “If it is a private equity fund, for example, who is looking at the next five to seven years, that would be nice.”

Uchumi shares have more than halved in value so far this year and are down 63 per cent from last year’s peak. Competition in Kenya’s retail sector has been growing as foreign firms look to capitalise on low penetration of the formal retail sector, estimated by analysts at just 25-30 per cent of the population.

Kipng’etich said he was not worried by the entry of French retail giant Carrefour through a franchisee, as it was targeting affluent shoppers while Uchumi was focused on middle-income earners. He said the cash from the recapitalisation was needed in tranches over the next one and a half years, for Uchumi to settle debts with suppliers and restock. Uchumi reported losses of Sh1 billion in the six months to the end of December after a loss for the 12 months to the end of June 2015 of Sh3.6 billion, which was restated from Sh3.2 billion due to the malpractices uncovered.

The new investor would need patience at first but should expect strong returns in two years, he said, adding that Uchumi was also talking to existing shareholders on the injection.

 

“It can be anybody, even an individual with deep pockets and patience at the beginning, because it will take one or two years to clean up house and then we can look at exponential growth.”

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