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Change in the air, as a slumbering giant awakens

By | January 12th 2010 at 00:00:00 GMT +0300

by Jackson Okoth

Renewed rivalry is expected to change Kenya’s retail space in the coming months, as Uchumi Supermarket pulls itself out of bankruptcy, which saw the giant retail chain placed under receivership three years ago.

At a shareholders meeting later this month, directors of the firm will seek a special resolution allowing the company to convert all debentures into equity.

If shareholders do not buy into this plan, both Kenya Commercial Bank and PTA bank, Uchumi’s main creditors, will be asked to reschedule part of the debt.

Uchumi is keen to reclaim its place as the retail market leader.

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The Receiver-Manager, Jonathan Ciano.

Photo: File/Standard

Uchumi directors have settled for the debt conversion option, after shareholders failed to inject enough cash into the business to correct the negative shareholder funds position on the balance sheet.

Viable business

"The fact that Uchumi is able to come out of receivership means that it is still a viable business that is able to raise capital," said Robert Bunyi, an analyst at Mavuno Capital.

Once the shadow of receivership is lifted, Uchumi’s next focus will be to resume trading its shares at the Nairobi Stock Exchange (NSE). Its shares were suspended on 31st May 2006, after the company become insolvent.

"Although Uchumi only has two years of profitability, this should not hinder its return to the bourse. Its balance sheet will be used to measure future profitability," said John Kirimi, Managing Director, Sterling Investment Bank.

The Capital Markets Authority (CMA) Act requires that a firm seeking a listing must have been profitable for at least three years. Another stringent requirements Uchumi must fulfill is positive working capital.

At present, the firm’s current liabilities stand at Sh1.8 billion, against current assets worth Sh1.01 billion. This is, however, expected to change after the debt conversion.

"We expect Uchumi’s share capital to move from Sh900 million, to Sh1.7 billion after the conversion, which we shall also turn into a rights issue," Jonathan Ciano, Receiver-Manager Uchumi Supermarkets, told Financial Journal.

journey of re-listng

Lifting of the receivership after the shareholders meeting will pave way for Uchumi to begin the journey of re-listing.

"Uchumi’s board of directors will make an application to the Capital Markets Authority when the receivership is lifted," said Ciano.

Incorporated in 1975, Uchumi ‘s influence in the retail sector has been immense.

Introducing a new experience in shopping, with a combination of convenience, low prices and relentless expansion, Uchumi emerged in the late 70s and early 80s to reshape the retail business landscape.

Listing at the NSE in 1992, Uchumi is credited with introducing the hypermarket concept in Kenya.

When it sunk into financial troubles, Uchumi’s weakened presence attracted new rivals who are been busy positioning themselves as more palatable alternatives.

Mew entrants

These entries include players such as Nakumatt, Tuskys, Chandarana, Woolmart and Ukwala. Also on this list is a new breed led by Naivas, considered the new kid on the block.

And though its re-listng could position Uchumi a shoulder above the rest, the market reaction is unpredictable.

"It is still unclear how the market will react when Uchumi shares resume trading at the NSE. This is because of intense competition it is facing," said Kirimi.

The value placed on Uchumi shares will depend on how investors perceive the growing competition in the retail sector, stockbrokers say.

It will be interesting to watch how a revived Uchumi performs in a market that is already crowded.

With space for large out-of-town stores rapidly diminishing, the retail business is changing as supermarkets go into electronics, furniture, pharmaceuticals, hardware tools, flowers and even garden ornaments.

And as more Kenyans spend time shopping, demand for better shelf presentation, more variety, space, safety lighting and personalised service is only expected to go up.

Uchumi knows it has to fight hard to regain lost territory.

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