Uchumi Out of the Woods as Suppliers Agree to Bailout Plan

The Kenyan government has revived plans to ensure the forty one year old Uchumi Supermarket Chain is back on its feet despite opposition from analysts calling for privatization to ensure an efficient turnaround, which is not dependent of a public bailout.

“The government as a shareholder is keen on Uchumi revival,” says said Dr Chris Kiptoo, the Principal Secretary, State Department of Trade, Government of Kenya when he chaired a meeting with chain’s stakeholders last week.
As a result of several consultative meetings held last week, a deed of settlement was brokered with Ksh 3.6 billion debt owed to suppliers converted into to equity as a last resort for the chain to remain operational despite a huge debt burden.

Further, the establishments of an ESCROW account to manage the current debt. According to the deal, the conversion of 50%of part of supplier debt into equity and 50 %balance will be considered as old debt. With an aim to restructure debt owed to suppliers and govern resumption of supplies to the retailer.
Uchumi CEO Dr. Julius Kipng’etich said the deed was a major boost towards the recovery strategy in a statement seen by Soko Directory.

“I thank you for your trust in Uchumi’s which you have demonstrated by signing this deed. I am pleased to state that this is the onset of a new and transparent relationship with our suppliers,” he said. The retail chain was bailed out by the government in 2006 after it collapsed and subsequently declared insolvent following years of loss making occasioned by mismanagement, plunder and competition. By 2006, KSh975 million had been given to the supermarket by the government to ensure it remains afloat.

READ:

• Uchumi Supermarket Records Negative Net worth
• The Rise and Fall of Uchumi Supermarket

Uchumi is among eight companies – Chase Bank, CMC, Imperial Bank, Mumias, Kenya Airways, National Bank and TransCentury- that Kenyan investment firm Cytonn Investment cited to have corporate governance issues that call into question the regulatory frameworks and their effectiveness.

“Poor strategies have led to the demise of companies like Mumias, Uchumi and Kenya Airways, with the capital in these entities shrinking by more than 90 percent, and the companies operating with negative equity positions,” according to Cytonn Corporate Governance Index (CGI) Report.

Further, Uchumi has been sued by five suppliers who want it wound up over delays in settling its debt. The retailer owes suppliers Sh3.6 billion with another Sh2.5 billion debt held by banks with charged assets. Kenblest Group, Githunguri Dairy, StarTimes, Kapa Oil Refineries, San Giorgio Ltd and I sync Media have moved to court over the arrears. Wow Beverages, Wazaran Ltd, Nairobi Flour Mills and professional marketing services have been enjoined in the case.

Next week, the chain’s revival strategy will score positively it the cases are withdrawn.