[2008-08-20]  Why Uchumi has not opened the door for strategic investor
Investors whose money is locked up in Uchumi Supermarkets will have to wait much longer to return to the Nairobi bourse.

This is because the retail chain’s advisory committee has yet to pick an anchor investor with extensive retail experience and financial muscle to spearhead the chain’s turnaround plan.

Mr Jonathan Ciano, the chain’s receiver manager, who had promised that the equity investor would be in by August, has since made a climb down and removed any timelines.

“We are waiting for the advisory committee to revert back to us with approvals or recommendations,” said Mr Ciano, adding that it was unclear when that would be done.

Eight bidders had been picked on June 18 for the equity stake, four of them local and the rest international. The list of local contenders includes two supermarkets whose identities have not been revealed.

It is, however, emerging that a section of the oversight committee, comprising mainly of government representatives, have asked for more time to consult on Uchumi’s new shareholding structure. “We also want to evaluate the financial and technical strength of the bidders,” a team member said.

Private sector representatives including the chain’s management, suppliers and creditors — KCB Group and PTA Bank— are however pushing for a speedy conclusion of the search.

Analysts say the delay could hurt Uchumi’s growth plans, leaving its main rivals to race ahead.

First, it will put on hold the chain’s ambition to claim the Number Two position behind Nakumatt from a distant third. It could also lead to a suspension of lump sum payments to the KCB Group and PTA Bank, its twin creditors.

Uchumi owes the twin creditors a total of Sh956 million, and had hoped the strategic partner would rev up its growth and help it meet targets.

Even more important is the fact that this delay could dampen the hopes of the more than 16,000 shareholders who have banked on the timely entry of the investor for a speedy return to trading at the Nairobi Stock Exchange (NSE).

Uchumi was suspended in June 2006 soon after it was declared insolvent barring the shareholders from trading at the bourse.

Failure to move on the search for the strategic investor is also said to be delaying because of the failure by representatives of the government, who are key to the search for a strategic investor, to attend the meetings. The team has not met since June 18.

“The committee has not been meeting as often as it is required due to the busy calendar of some of its members,” said a senior official at the Trade ministry familiar with details of the search.

On delays brought in by the sluggish pace of public officials in the committee, the official said the Trade permanent secretary had asked for more time to consult.

Trade has been the anchor ministry in the revival of the retail chain since its near collapse on June 1, 2006. The retail chain then reopened 45 days later under receivership that remains to date.
The PS, Mr Silas Njiru, who is the chairman of the advisory committee, is on official duty in Spain and could not be reached.

Other members of the committee from the government side include Ms Esther Koimett, the Investment Secretary and Mr Wanjuki Muchemi, the Solicitor General.

For Uchumi, the additional muscle from the strategic investor would be a key plank in the chain’s quest to full recovery, according to details contained in the firm’s five-year business plan to 2012.

The investor is expected to offer management experience and inject about Sh800 million into the chain to shore up shareholder funds that had been eroded by periodic losses and sharpen its

competitive edge in the face of mounting competition.

This is to happen through a broad turnaround plan that will see the retail chain open more branches in an attempt to regain control of lost market share. Uchumi also planed to spread its reach in Uganda, Tanzania and Southern Sudan over the next three years.

Once a star, Uchumi is now trailing Nakumatt and Tuskys stores. Its aggressive growth is expected push its profits to Sh635 million by 2010.

The firm posted net earnings of Sh113 million in the nine months to March on revenues of Sh5.2 billion, — a break from a five-year loss-making and a signal that its turnaround strategy is bearing fruit.

But its shareholders are not celebrating yet. They have to wait for the company to clear the mountain of accumulated losses that stood at Sh2.8 billion in July 2006.

Accounting rules say firms that have accumulated losses can only pay dividends after fully compensating for past losses. The five-year business plan shows that the retail chain expects to clear the loss pile in 2012 at the earliest, but this again is dependent on it getting help from an equity partner.

On the suspended shares, the retail chain would have to go through a full turnaround, which includes a makeover of its debt-ridden balance sheet and a boost to its cash flow position, before it can be allowed to trade at the NSE.

Besides the PTA Bank and KCB Group debt, the retail firm owes the Government Sh675 million, ICDC Sh40 million and a host of suppliers.
Source: Business Daily