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Cabinet approves Sh1.8b bailout for cash-strapped Uchumi Supermarkets

BUSINESS
By Jacob Ng'etich | July 31st 2016
Uchumi supermarket along Ngong Road [PHOTO: WILBERFORCE OKWIRI/STANDARD]

A Cabinet meeting at State House on Thursday approved Sh1.8 billion bailout for Uchumi Supermarkets. The Cabinet approval is a boon for the retailer that had asked the Government for Sh1.2 billion to settle part of the suppliers’ Sh3.6 billion debts in their turn-around strategy.

According to a source at State House, the Cabinet passed the resolution to help the the cash-strapped retail store spring back to profitability. Last week, Uchumi Supermarkets Chief Executive Julius Kipng’etich hinted that his firm was to receive cash boost from the Government.

However, Industrialisation and Trade Cabinet Secretary Adan Mohamed did not commit and instead said they were still reviewing an application by the retail chain for financial bailout.

Mohamed said Uchumi supports thousands of employees and suppliers and his ministry believed its revival was in the interest of the country. “Their (Uchumi supermarket) application for a bail out is under consideration and once we complete the process we will communicate the same,” said Mohamed.

The CS said the retail chain had undergone a lot of restructuring including cutting down its branch network by half and reduced the number of casual workers in the recovery strategy. “The management at Uchumi has reduced from 40 to 20 branches, and cut on several casual jobs as they seek to stabilise and return to vibrancy and we are committed to holding their hand in this process,” said Mohamed.

He said the retail store had suffered significantly due to gross mismanagement and the current management had a herculean task of turning it around.

“The business is indebted to its suppliers due to poor previous management and the options for Uchumi was to renegotiate with lenders for the loans they had, sell some of its property or borrow from government,” said Mohamed.

He said since the Government held significant shares in the retail chain and given the importance of the supermarket to the economy, they had decided to bailout the company.

The bail out comes at a time when the retailer is engaged in what is perhaps its fiercest fight for survival after a High Court ruling that paved way for its liquidation. “The Government is backing us up. And you will see the Government cheque come soon,” a bullish Kipng’etich told KTN in an interview early in the week.

Express liquidation

According to Kipng’etich, the amount from Government would be used to settle part of the retailer’s debt. He assured his customers that in the next few weeks the hitherto empty shelves will be filled up as suppliers resume their deliveries.

Uchumi has already appealed against the High Court ruling and is expected to contest the court’s reliance on the harsher old Companies Act. Unlike the old statute, which allows for express liquidation of a company that has lost a winding-up petition, the new Companies Act would have allowed them to negotiate for repayment with the aggrieved party.

“Take notice that the respondent, Uchumi Supermarkets Ltd, being dissatisfied with the ruling of Honourable Lady Justice Farah Amin given at Nairobi High Court, Commercial and Admiralty division on the 17th day of June 2016 intends to appeal to the court of appeal against the whole of the said decision,” said Uchumi in court papers filed at the High Court.

The news of the court’s decision hit the NSE-listed retail store hard, with its share price hitting an all-time low of Sh2.90.

With a total of 300 million shares, it means Uchumi investors have lost a massive Sh6.03 billion on paper value. Kipng’etich said already, money had started flowing into an escrow account opened and operated by both suppliers and Uchumi management as a security measure.

A Cabinet meeting at State House on Thursday approved Sh1.8 billion bailout for Uchumi Supermarkets. The Cabinet approval is a boon for the retailer that had asked the Government for Sh1.2 billion to settle part of the suppliers’ Sh3.6 billion debts in their turn-around strategy.

According to a source at State House, the Cabinet passed the resolution to help the the cash-strapped retail store spring back to profitability. Last week, Uchumi Supermarkets Chief Executive Julius Kipng’etich hinted that his firm was to receive cash boost from the Government.

However, Industrialisation and Trade Cabinet Secretary Adan Mohamed did not commit and instead said they were still reviewing an application by the retail chain for financial bailout.

Mohamed said Uchumi supports thousands of employees and suppliers and his ministry believed its revival was in the interest of the country. “Their (Uchumi supermarket) application for a bail out is under consideration and once we complete the process we will communicate the same,” said Mohamed.

The CS said the retail chain had undergone a lot of restructuring including cutting down its branch network by half and reduced the number of casual workers in the recovery strategy. “The management at Uchumi has reduced from 40 to 20 branches, and cut on several casual jobs as they seek to stabilise and return to vibrancy and we are committed to holding their hand in this process,” said Mohamed.

He said the retail store had suffered significantly due to gross mismanagement and the current management had a herculean task of turning it around.

“The business is indebted to its suppliers due to poor previous management and the options for Uchumi was to renegotiate with lenders for the loans they had, sell some of its property or borrow from government,” said Mohamed.

He said since the Government held significant shares in the retail chain and given the importance of the supermarket to the economy, they had decided to bailout the company.

The bail out comes at a time when the retailer is engaged in what is perhaps its fiercest fight for survival after a High Court ruling that paved way for its liquidation. “The Government is backing us up. And you will see the Government cheque come soon,” a bullish Kipng’etich told KTN in an interview early in the week.

Express liquidation

According to Kipng’etich, the amount from Government would be used to settle part of the retailer’s debt. He assured his customers that in the next few weeks the hitherto empty shelves will be filled up as suppliers resume their deliveries.

Uchumi has already appealed against the High Court ruling and is expected to contest the court’s reliance on the harsher old Companies Act. Unlike the old statute, which allows for express liquidation of a company that has lost a winding-up petition, the new Companies Act would have allowed them to negotiate for repayment with the aggrieved party.

“Take notice that the respondent, Uchumi Supermarkets Ltd, being dissatisfied with the ruling of Honourable Lady Justice Farah Amin given at Nairobi High Court, Commercial and Admiralty division on the 17th day of June 2016 intends to appeal to the court of appeal against the whole of the said decision,” said Uchumi in court papers filed at the High Court.

The news of the court’s decision hit the NSE-listed retail store hard, with its share price hitting an all-time low of Sh2.90.

With a total of 300 million shares, it means Uchumi investors have lost a massive Sh6.03 billion on paper value. Kipng’etich said already, money had started flowing into an escrow account opened and operated by both suppliers and Uchumi management as a security measure.

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