Nakumatt seeks bank loans to finance Shoprite buyout

Nakumatt is in talks with its lenders for cash to finance the transaction that is estimated at Sh4 billion. FILE 

By SIMON CIURI

In Summary

• Mr Atul Shah said in an interview that Nakumatt is in talks with its lenders for cash to finance the transaction that is estimated at Sh4 billion.
• Mr Shah was, however, non-committal on whether the entire deal will be financed through bank loans.
• Nakumatt is also said to be close to signing a deal with a strategic investor that will see the supermarket get fresh capital injection to ease the heavy debt burden in its books.

Nakumatt Holdings will finance the acquisition of three Shoprite outlets in Tanzania through bank loans, managing director of Kenya’s largest supermarket chain has said.

Mr Atul Shah said in an interview that Nakumatt is in talks with its lenders for cash to finance the transaction that is estimated at Sh4 billion.

“We are (also) discussing with the bankers as we work towards concluding the deal,” said Mr Shah, who last week estimated that the transaction will take about four months to conclude.

The Nakumatt MD was, however, non-committal on whether the entire deal will be financed through bank loans. Nakumatt is also said to be close to signing a deal with a strategic investor that will see the supermarket get fresh capital injection to ease the heavy debt burden in its books.

READ: Nakumatt seeks capital injection to ease debt load

The impending deal is disclosed in a new report by Global Credit Rating (GCR), a South African firm authorised by the capital markets regulator to assess the creditworthiness of Kenyan companies seeking debt or investment partners.

GCR says that Nakumatt’s profitability is being eroded by interest payments on loans that the retailer has borrowed for working capital.

“Management is in advanced negotiations with a third-party investor to inject new capital into the business, which would markedly improve the group’s credit risk profile and provide funding for medium term growth,” said GCR in the report dated December 23.

The heavy working capital requirement is attributed to the need to stock new branches for the fast-expanding retailer. GCR notes that Nakumatt’s working capital absorptions totalled Sh3.5 billion last year, most of which were sourced from short-term lenders.

“Much of the debt raised has been short-term in nature, placing liquidity pressure on Nakumatt. In addition, the high cost of funding has materially eroded operating profits, with interest cover measures remaining below two times in 2013 and first half of 2014,” read part of the credit rating report.

The Kenyan supermarket chain is in the process of buying out three Tanzanian stores of South African retail giant Shoprite. Two of the outlets are in Dar es Salaam while the other is in Arusha. Nakumatt already has a presence in Tanzania with a branch in Moshi.

READ: Nakumatt to finalise Shoprite deal by April

Mr Shah did not disclose how much the supermarket will be borrowing or the timeline that the management has set to raise the funds.

Nakumatt is said to be in talks with both local and foreign financiers and is currently negotiating repayment details. The retailer shelved plans to sell an equity stake to a strategic investor after the Westgate Mall terror attack in which it lost its largest branch which Mr Shah estimated was valued at about Sh2 billion.

Mr Shah said in an interview last year that the retail chain, which operates nearly 50 branches in Kenya, Tanzania, Uganda and Rwanda, is worth an estimated Sh34 billion.