By VICTOR JUMA, vjuma@ke.nationmedia.com
In Summary
- The retailer went to the market seeking Sh500 million through an insured loan and got all it wanted, signalling investors’ confidence in its ability to repay the debt.
- The loan comes ahead of Nakumatt’s plan to raise billions of shillings from the sale of a 25 per cent stake to an undisclosed investor.
Retail chain Nakumatt Holdings has raised Sh500
million through a short- term loan in a deal expected to pave the way
for entry of a deep-pocketed strategic investor into the business.
The transaction was disclosed by investment advisory firm Dry Associates, which arranged the private placement last quarter.
The firm said Nakumatt went to the market seeking
Sh500 million through an insured loan and got all it wanted, signalling
investors’ confidence in its ability to repay the debt.
The new loan comes ahead of Nakumatt’s plan to
raise billions of shillings from the sale of a 25 per cent stake to an
undisclosed investor.
The retailer made the move after a sharp rise in
debt that has constrained its cash flows, leading to delays in paying
suppliers. Part of the new capital is set to retire some of the
outstanding debt that has earned the retailer a credit rating downgrade.
South Africa’s Global Credit Ratings (GCR) recently
assigned Nakumatt a long-term rating of BB- down from BB, indicating a
weakened ability to meet outstanding financial obligations.
“The rating downgrade reflects the notable
deterioration in Nakumatt’s credit risk profile. Growth of the business
has been highly leveraged, with the ever-growing working capital and
capex requirements having been largely funded through short-term debt,”
said GCR in the credit report.
The rating agency noted that Nakumatt’s debt burden
had quadrupled in the last four years to Sh18 billion up from Sh4.7
billion in 2012 “placing unduly high pressure on the group’s gearing and
liquidity position, with funding limits having largely been reached.”
The GCR disclosed it did not factor in plans by the
regional retailer to sell a minority stake to new investors during the
rating process as such previous plans had fallen flat.
Nakumatt’s operations are symptomatic of the
pressure facing Kenya’s formal retailers in general, with several of the
supermarkets delaying payments to suppliers amid a debt-fuelled and
capital-intensive race to expand locally and in the region.
Nakumatt, Tuskys and Naivas jointly owed suppliers
Sh8 billion in unpaid dues in September last year. Some of the payments
date back to early 2014.
The tough operating environment has pushed several
supermarkets into losses including Uchumi and Ukwala, which was acquired
by Botswana’s Choppies.
Nakumatt’s gross sales grew by nearly a tenth to
Sh51.6 billion in the year ended February 2015 compared to Sh48 billion a
year earlier.
Surging finance costs, however, ate into the
supermarket’s earnings-- with gross profit plunging to Sh305 million in
the review period.
Competition has also increased with the entry and
expansion of foreign retailers such as French chain Carrefour and South
Africa’s Massmart Holdings-- which trades locally under the Game brand.
Businessman John Harun Mwau recently sold his 7.7 per cent
stake in Nakumatt ahead of the dilutive entry of the new investor in the
company.
It is not clear how much Nakumatt could raise from
the new investor, but the amount could top the Sh10 billion mark if the
retailer has maintained or grown its value from three years ago when
its CEO Atul Shah said it was worth about Sh40.8 billion.
A sale agreement was expected to have been signed
by the end of this month. If successful, the deal could still take
months to complete as approval from the relevant regulators is sought.
With 42 outlets in Kenya, the retailer is
majority-owned by the Shah family (92.3 per cent) and the rest of the
equity is held by the unnamed investor who bought out Mr Mwau.
Ratings agency GCR in an earlier report said that
the equity deal would see substantial capital injected into the
business, a feat that would markedly ease funding pressure and
facilitate the planned rollout of new branches.
Nakumatt’s plan to sell a large stake to a
strategic investor was first mooted in 2009 when a consortium of
investors led by London-based private equity fund Satya Capital
—associated with Sudanese billionaire Mo Ibrahim— expressed interest in
the retail chain, but the deal fell through.
The firm’s decision to tie up with a strategic
investor means it has abandoned earlier plans to raise capital through
an initial public offering at the Nairobi Securities Exchange.
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