Uchumi gets Sh500m KCB loan to stock up ahead of Christmas

Corporate News

Uchumi chief executive Julius Kipng’etich. PHOTO | DIANA NGILA 

By VICTOR JUMA, vjuma@ke.nationmedia.com

In Summary

• The new loan will raise the total amount that Uchumi Supermarkets owes the KCB Group to Sh1 billion.
• The retailer is relying on borrowings as a temporary measure before completing the sale of non-core assets whose proceeds will be used to settle its debts.
• Uchumi is also selling some of its assets including land to repay its debts including to suppliers whom it owes Sh1.7 billion.

Uchumi Supermarkets is set to receive a Sh500 million short term loan from KCB Group to stock up its outlets ahead of the Christmas shopping period.

Chief executive Julius Kipng’etich said in an interview the new loan will raise the total amount that the retailer owes the lender to Sh1 billion.

“We’re in negotiation with our financier (KCB) for a bridging loan of possibly Sh500 million,” said Mr Kipng’etich in an interview.

The retailer is relying on borrowings as a temporary measure before completing the sale of non-core assets whose proceeds will be used to settle its debts.

Uchumi has moved to stock up its outlets in a bid to win back shoppers who had stopped visiting its stores due to frequent stock outs.

The retailer claims that the efforts are paying off, with foot traffic per branch having nearly doubled to about 3,700 per day from a low of 2,000 per day just months ago.

The retail chain has also moved to restore relationships with financiers and suppliers, with whom it previously had strained ties due to slow payments for goods delivered.

As part of its turnaround plan, the listed retailer’s new management says it is in the process of clearing alleged fraud and unwinding imprudent decisions made by its former executives.

The company made total provisions of Sh2.6 billion in the year ended June, representing a write-off of a previous overstatement of assets and costs of shutting its subsidiaries in Tanzania and Uganda.

Uchumi is also selling some of its assets including land to repay its debts including to suppliers whom it owes Sh1.7 billion, according to Mr Kipng’etich.

The firm expects to raise about Sh3.5 billion from the asset sales by mid next year, with Sh500 million of the money to be reinvested in the business.

“With that act alone Uchumi will be out of the woods, then we can concentrate on growing the business,” said Mr Kipng’etich.

READ: Uchumi secures approval for sale of Nairobi properties

The new KCB overdraft will in the meantime raise its current liabilities which jumped 52.1 per cent to Sh5.1 billion in the year ended June.

The rise in the debts saw Uchumi’s finance costs increase more than five-fold to Sh335.8 million in the same period, a move that helped pull it into losses.

The retailer made a net loss of Sh3.4 billion in the period, reversing the net profit of Sh364.3 million a year earlier.

Its sales had dropped 10.3 per cent to Sh12.9 billion while operating expenses increased by a third to Sh4.8 billion, also contributing to the loss.

Besides the asset sales, Uchumi is also seeking to recover millions of shillings from landlords to whom the previous management had made down payments for proposed outlets in Kenya and the neighbouring countries.

The company says three directors who held office during the time when the alleged malpractices took place have resigned, signaling a boardroom shakeup.

The chairperson Khadija Mire, James Murigu, and Bartholomew Ragalo –who were due for re-election at the upcoming AGM— will now step down.

Uchumi has nominated Ms Catherine Ngahu, the executive director of SBO Research and former chair of Kenya ICT Board, to be its new chairperson.

Mr Louis Otieno, a manager at Microsoft Africa, has also been nominated to be a director of the retailer pending ratification by shareholders.

Uchumi’s turnaround efforts come at a time of increased competition in the local retail market where there is aggressive expansion by existing and new players.

Nakumatt, Naivas and Tuskys continue to open more branches in major towns while international retailers like France’s Carrefour and Botswana’s Choppies are set for entry in the local through acquisitions and greenfield ventures.

Uchumi’s share price has lost 12 per cent over the past one year to trade at Sh7.9.