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Uchumi awaits Cabinet approval for Sh1.2b bailout

BUSINESS
By Dominic Omondi | July 15th 2016

Cash-strapped Uchumi Supermarkets is awaiting the Cabinet’s approval for a Sh1.2 billion bailout package.

The retail store also hopes to persuade suppliers who want the supermarket liquidated to drop their hard stance by the time the case is up for hearing next week. Uchumi CEO Julius Kipng’etich is optimistic the Sh1.2 billion loan they had requested from Government to help turn around the company would soon hit their bank accounts.

“The Government has agreed but there is a process of approving the funds. It is not a matter of ‘if’ the money will be given, it is a matter of ‘when’,” said the bullish Kipng’etich during a media briefing when the firm announced a payout of Sh240 million to suppliers who signed the Deed of Settlement, which allows suppliers to be paid every 30 days after supplying.

Sources privy to the issue told The Standard that though Treasury Cabinet Secretary Henry Rotich did not mention Uchumi in his budget speech as part of the government’s strategic investments that would be bailed out, the Government had set aside some Sh1.2 billion for the retail store in the contingency fund.

And now all that is being awaited is the Cabinet’s approval, said the source. Association of Kenya Suppliers Chairman Kimani Rugendo said by the time the budget was being read, the Government had not appreciated the magnitude of the matter. He said the Government had since been convinced and would soon be including Uchumi’s funds in a supplementary budget.

He insisted Government funding is not tied to the winding up case, and so the money would be sent irrespective of whether the case is withdrawn or not. On the ongoing wind-up petition, Kipng’etich said they have since talked to one of the suppliers and would finalise negotiations by end of today (Friday).

Insolvency case

Three weeks ago, the retailer lost the first round of a legal battle where it was seeking to have an insolvency case filed by suppliers heard and determined under the newly enacted legislation. The old Companies Act is hostile to struggling firms as it provides for express liquidation in case of default, while the newer laws allow such businesses to negotiate on repayment of outstanding debt.

It was not immediately clear how many of the suppliers had since converted their debt into equity, as the company had envisaged in their turn-around strategy. Out of the Sh3.6 billion that the retailer owed suppliers, half of it was supposed to be converted into equity.

Kimani promised to reveal the information once it was ready. Suppliers were paid Sh49 billion in the first 10 days of June since when the management and suppliers agreed to open an escrow account. Yesterday, they were paid Sh240 million for the months of May and June, 2016 in what the firm believes is a sign that the company is beating the financial odds.

The retailer is also optimistic that all the suppliers would eventually return after 75 per cent of them resumed their supplies. 

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