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Reprieve for Uchumi Supermarkets as suppliers agree to convert Sh1.8 billion debt into equity

BUSINESS
By Lee Mwiti | May 19th 2016
Uchumi Supermarket, Embu branch, which was closed on March 21, 2016 as part of cost cutting. The supermarket's suppliers have agreed to an out of court settlement with the retailer. (PHOTO: JOSEPH MUCHIRI/ STANDARD)

Uchumi Supermarkets’ suppliers have agreed to an out of court settlement with the retailer. Both parties have now agreed to a proposal to convert Sh1.8 billion which is part of Sh3.6 billion owed to suppliers into equity.

The deal, which was brokered by the Ministry of Trade and Industrialisation yesterday, under the guidance of Principal Secretary in the State Department of Trade Chris Kiptoo, also saw the suppliers commit themselves to be supplying Uchumi with new stock.

Association of Kenya Suppliers Chairman Kimani Rugendo said, “With the Sh1.8 billion of our debt turned into equity, we are now strategic investors in Uchumi. What we want is an out of court settlement, because even the suppliers who petitioned in the first place, are those who are owed very little by Uchumi.”

Some suppliers had moved to court seeking orders to wind up the troubled giant retailer for failing to service debts. However, Kenya Commercial Bank (KCB) and United Bank for Africa (UBA), both which are owed by Uchumi a total of Sh2.5 billion, developed cold feet.

KCB Chief Executive Joshua Oigara insisted that the framework agreement being proposed by the Trade ministry should be completed before his bank could make a decision.

KCB is already holding Sh400 million which is part of the proceeds Uchumi got after selling its Ngong Road branch for Sh1.4 billion. UBA on the other hand wants the court petition to be settled first before it also makes a decision.

Dr Kiptoo said his ministry is working on the negotiations between Uchumi and the banks and he was optimistic for a breakthrough soon.

The framework agreement is a strategy that is supposed to see Uchumi back on its feet. It comprises the deal with the suppliers, and Uchumi’s own plans for revival by first by getting a strategic investor, and second, implementing far reaching cost-cutting measures.

Approve its sale

“Already we have a draft framework agreement ready. We have also offloaded excess staff and closed unprofitable branches, and the suppliers have agreed for an out of court settlement. So now it’s for the other stakeholders like our banks and the government to get in and have Uchumi rolling again,” said the retailer’s Chief Executive Julius Kipng’etich.

When asked about the measures the retailer was taking to revive itself, Mr Kip’ngetich started by detailing the transactions involving the Ngong Road branch. “We offloaded this branch for Sh1.4 billion and already we have received Sh400 million. However, the money has not yet reached us since KCB holds it because of the Sh900 million loan we owe them,” Kipng’etich explained.

He said the retailer owns a piece of land in Kasarani valued at Sh2.3 billion, which it intends to dispose. However, there is a court case concerning the land. He said once the matter is settled the shareholders will approve its sale. Kipng’etich added that another piece of land in Langata will be mortgaged and will hopefully unlock Sh300 million currently held by the banks. The last stage of the plan is to get an investor who will provide the remaining cash.

Investment Secretary Esther Koimett, while representing the Treasury, however declined to reveal whether the Government was going to prepare a rescue package to bailout Uchumi, saying, “I think morally, it is wrong whenever our companies are mismanaged, to expect the government to save them. First, we want the issues of poor corporate governance that plagued Uchumi to be handled. The government owns 15 per cent of this company and therefore, it is very important to us.”

Ms Koimett was adamant that the Government needed to be assured the culprits who took Uchumi down would be brought to book.

Assuring Koimett, Kipng’etich said: “The Institute of Certified Public Accountants is already planning some disciplinary measures on former CEO Jonathan Ciano. Also the Capital Markets Authority has received a report about the fraudulence under Ciano and was investigating it, and so was the directorate of criminal investigations.”

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