Uchumi battles to recover Sh2bn from landlords

Corporate News

Uchumi Supermarkets branch in Kisumu. The retailer has started selling its non-core assets like land to boost cash flow and reduce its reliance on borrowing from banks. PHOTO | FILE 

By SIMON CIURI, sciuri@ke.nationmedia.com

In Summary

• Uchumi had committed to open more than 20 outlets in Kenya in the mid-term and had reserved space in malls such as Centum-owned Two Rivers, Sarit Centre, Lake Basin Mall in Kisumu and Kenyatta University’s Unicity.
• The payments now appear to have left the company with a huge legal battle that might take years to resolve.
• The retailer has instructed its lawyers to serve the landlords with demand letters seeking refunds following the suspension of expansion plans.

Uchumi Supermarkets has opened a multi-pronged legal battle against landlords who pocketed hundreds of millions of shillings in down payments for proposed outlets in Kenya and neighbouring countries. 

The retailer said on Friday that it had instructed its lawyers to serve the landlords with demand letters seeking refunds following the suspension of expansion plans.

Uchumi had committed to open more than 20 outlets in Kenya in the mid-term and had reserved space in malls such as Centum-owned Two Rivers, Sarit Centre (phase three), Lake Basin Mall in Kisumu and Kenyatta University’s Unicity.

The payments, which were made under the retail chain’s former chief executive Jonathan Ciano, now appear to have left the company with a huge legal battle that might take years to resolve.

“These uncontrolled expansions had no basis and now appear to have been well-calculated schemes to defraud Uchumi in the name of expansion and to hoodwink the investing public that the company was doing well,” said a director who sought anonymity.

Uchumi chief executive officer Julius Kipng’etich confirmed that the retail chain was pursuing the landlords to recover the money, which he said runs into millions of shillings.

“A decision to recover the money has been made. Our lawyers are handling the issue and have made good progress,” Mr Kipng’etich said in a telephone interview.

“There was no co-ordination on how these branches, if operational, would have helped revive Uchumi’s fortunes.”

Property dealers say potential tenants pay goodwill and rents of between five and 10 months for early bookings.

“After the goodwill, the tenant pays five- to 10-month rents depending on the kind of business one intends to do. For malls and hypermarkets, goodwill is always expensive because these are commercial ventures,” said Anthony Mugo, the chief executive of Falcon Development Ltd, a real estate developer.

Uchumi is said to have made Sh2 billion in pre-payments, a figure we could not independently verify.

Out of the 55 new branches Uchumi was eyeing in the mid-term, 23 were in Kenya, 12 in Tanzania, eight in Rwanda and one each in Uganda and South Sudan, where the retailer planned to make a debut.

Seven of the Kenyan branches were to be opened in Nairobi, including Kawangware, South B, Utawala and Embakasi. Kapsabet, Narok, Kitale, Bungoma and Machakos were the other locations.

Mr Kipng’etich did not disclose the outlets for which Uchumi had made payments.

Mr Ciano, the former CEO who helped revive Uchumi in 2006 when it was put in receivership and given a government-led bailout, was ousted earlier this year alongside his chief finance officer after the retailer failed to pay suppliers.