D-day as creditors make final call on Nakumatt’s fate

Elephant dummy being transported along Thika Road by lorry on July 13, 2019. [Edward Kiplimo,Standard]
Today, creditors will make the final call on the brutal fate of what was once East Africa’s biggest supermarket chain.  

They are due to vote on whether to dissolve Nakumatt Holdings, with all indicators that the curtains could finally fall on the family-owned retail store that rose from a humble shop in Nakuru over 20 years ago.

In a span of two years, the Atul Shah-run Nakumatt has spiralled downwards to become a case study in business classes on how not to run a retail chain. It has also laid bare the cut-throat world of the retail sector.

Nakumatt’s fall became more imminent at the tail end on 2016, especially after the abrupt exit of former politician Harun Mwau, who owned a 7.7 per cent stake, just as the company was looking for an investor to save it from ballooning debt.

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The supermarket’s revenues peaked in 2017 to Sh52 billion from Sh40.4 billion the previous year, recording an average year-on-year growth of seven per cent. By February last year, however, the turnover had dipped 96 per cent to Sh1.9 billion.

The retailer giant that was once said to be heading the Walmart way in 2017 boasted 60 branches spread across the region and by April 2018, it had only six branches. By the close of last year, it had none.

Peter Kahi, who was appointed Nakumatt’s administrator by the courts, has fallen short of ruling out the turnaround of the retailer altogether, saying it would take years and that it would be costly. The firm, he adds, might be operating at a loss during the entire period.

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“An attempted turnaround of the business would be very costly and the company is likely to be loss-making for the better part of the turnaround window, implying that such a turnaround would need to be financed by additional debt to sustain operations before achieving breakeven,” he said in a statement ahead of today’s vote.

Mr Kahi also said the firm has no assets to “collateralise such additional funding” and doubts the likelihood of attracting an investor to inject equity.

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“The administrator is of the view that it is likely to be difficult to attract an investor to inject in the substantial amount of equity required to restructure Nakumatt Holdings Ltd’s balance sheet due to the current high degree of financial leverage,” he said.

 “… the administrator cannot guarantee that by attempting to turn around the business, the outcome to the entire body of creditors will not be worse off than would have been the case had the company simply gone into liquidation. This is especially because the company will be trading at a loss for the better part of the turnaround window, and taking on an additional and significant amount of debt to sustain these operations.”

The creditors, who are owed almost Sh40 billion, include banks, landlords and suppliers. 

Creditors owed less than Sh100,000 and without proof are not eligible to vote.

The exit of Nakumatt has seen Naivas emerge as the biggest beneficiary. Naivas outbid Chandarana, Tuskys and Quickmart for Nakumatt’s remaining six branches by offering Sh422.5 million. The six branches included Nakumatt Highridge, Nakumatt Mega, Nakumatt Kisumu, Nakumatt Lavington, Nakumatt Prestige and Nakumatt Nakuru.

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Chandarana had offered Sh246 million for the six stores, while Tuskys bid Sh70 million for three branches as Quickmart bid Sh160 million for the Nakuru branch. Naivas has since occupied key branches that once portended Nakumatt’s fortunes, including Nakumatt Nakuru, Lavington and Prestige, which halted operations in November 2019 after the landlords ended the leases. Following the sale of the stores to Naivas and after meeting administration costs, Kahi will use the money to pay the various creditors.

“The liquidator will then proceed to wind up the affairs of the company as envisaged and approved by creditors,” he said.

Naivas purchased the furniture, fixtures and fittings of the premises and also negotiated new terms with the landlords.

By April 2018, Nakumatt had remained with seven operational branches in a bid to stay afloat. However, things got worse after Nakumatt Ukay was demolished, and the retailer also scaled down business at Nakumatt Mega, putting the branches at six. The best-performing branches were Nakumatt Mega, Village Market, Westgate, Galleria and Junction. A terrorist attack on Westgate in 2013 would also highly impact the retail chain’s fortunes. 

The administrator blamed the drop in sales growth post-2017 to branch closures and reduced stock supply. This saw the sales fall by 70 per cent to Sh15.4 billion. The sales further sharply fell 88 per cent in 2019 on the back of reduced operations. Kahi further blamed the negative profits observed from 2016-2019 on “high operating and finance costs and significant write off inventory in 2017”.

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The administrators who took over two years ago have made receipts and payments worth close to Sh10 billion.

Suppliers took a huge chunk of the payments at Sh2.6 billion, while sales and debtors gobbled up over Sh3 billion of the receipts.  

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NakumattAtul ShahHarun MwauPeter Kahi