Unfamiliar sight of near-empty shelves and lack of shoppers in a
Nakumatt supermarket in Kampala. PHOTO | MORGAN MBABAZI | NATION
Regional retailer Nakumatt is running out of options for
survival after it emerged that its owners have no immediate plan to
inject new capital into the business as the Kenya government has ruled
out bailing out a private enterprise.
Nakumatt managing
director Atuh Shah said the company faces an intricate balancing act to
meet all its obligations from internal cashflows, which is tough, going
by the empty shelves after key suppliers have pulled out citing unpaid
dues.
“We are surviving on internally generated cash
in a balancing act to ensure that the scarce resources are reasonably
applied to meet all overheads including staff remuneration,” Mr Shah
said.
The company has not been forthcoming on the fate
of a $75 million injection from a new investor that was expected in
March in exchange for a 25 per cent stake.
Ongoing negotiations
“This month alone, I have seen several groups and I believe they
are sizing up the opportunity,” said a source, who also indicated that
the talks had dragged on longer than expected as potential investors,
especially private equity funds, kept reviewing their conditions.
There
may have been a missed opportunity three years ago when the Nakumatt
management bragged of investors trooping to its Industrial Area
headquarters wanting in on the then $9.4 billion company.
At
the time, however, the company was struggling to ward off questions
over its ownership but these appear to have been resolved in November
last year.
“There has been enormous interest in the
retailer in the last eight months but the opacity of its books coupled
with its owners resisting dilution of their interest have since seen the
number of interested parties thin out. As it is all negotiations have
ended,” a source privy to the goings-on said.
It is understood the investor who was to come in March would have released $40 million immediately and $35 million last month.
Serious ramifications
Nakumatt
was hoping to use the funds to cut back its overall debt by retiring
some of its existing funding tools including bank loans and related
debts.
With that window apparently shut the owners
could restructure its operations to keep it afloat, cede control to
deep-pocketed investor, lobby for a government bailout or at worst
liquidate the business.
“The government is not a
Nakumatt shareholder so any public bailout is out of the question.
However, the retailer’s collapse would have serious ramifications on the
economy. This is why we are working hard to ensure the retailer stays
open,” Kenya’s Trade and Industrialisation Principal Secretary Dr Chris
Kiptoo said.
A private investor could also be discouraged by a rating agency’s downgrading of the company’s credit risk profile.
“At
its last review in December 2016, Global Consumer Rating (GCR)
highlighted the severe deterioration in Nakumatt’s credit risk profile.
Their rating was downgraded,” GCR said.
The rating
would have been worse were it not for the expectation of a substantial
capital injection this year which is yet to materialise.
The management is still appealing for significant capitalisation of the business with a pledge to put the funds to good use.
As
of February, Nakumatt’s net interest cover (firm’s ability to pay
interest on its loans) dropped to 1.2 times compared with 1.8 times two
years ago. Globally, a mark below 1.5 times is seen as red flag.
The retailer’s profit dipped to $3.05 million from $8.23 million four years ago on the back of rising financing costs.
“While
capital expenditure has been high, the greater utilisation of debt has
come from the working capital funding necessary to purchase stock for
new stores. Gross debt has almost tripled from $42 million in 2011 to
$150 million last year,” GCR said in its December review of the firm.
“The
results reflect a weaker balance sheet and a strong cost base despite
their cost line only being employee and rental premises. From this,
there is an element that is sucking money out. This coupled with the
chain’s ownership structure, is a potential turnoff for any strategic
investor,” an analyst told The EastAfrican.
Audit
firm KPMG has been called in to manage the retailer’s books and has
opened an account through which creditors are able to track cashflows.
Nakumatt’s
woes raise key questions as to how the retailer sunk into debt as it
invested $4 million in five new branches in Tanzania, Rwanda and Uganda
last year.
Mr
Shah blames this on misreading the region’s economic growth prospects.
“We anticipated steady growth over the past ten years. Unfortunately it
flattened due to higher inflation and operating overheads,” Mr Shah
said.
The retailer has recently closed five branches in
Uganda, one in Kenya and scaled down warehousing. Employees are being
paid on a weekly, rather than a monthly basis after going without pay in
May and June.
The
closure of the Ugandan units was part of the ongoing restructuring
process initiated to stem extreme financial pressure that has resulted
from a huge mountain of debt.
There is uncertainty of a different kind in Rwanda where Nakumatt has three branches.
“The
pending auction of Union Trade Centre by Rwanda Revenue Authority over
tax arrears is the only thing that could disrupt our business in Kigali.
We plan to move the store to Remera before the year ends,” Nakumatt
Rwanda Country Manager Adan Ramata.
No comments :
Post a Comment