Tuskys reportedly raises $18.5m short term loan from a Mauritius PE firm

Tuskys, the struggling Kenyan supermarket chain, has reportedly agreed a Sh2bn ($18.5m) short term debt facility from an unnamed Mauritius-based private equity company. Details of the loan agreement, including interest rate, repayment period and whether or not it is secured, have not been disclosed.

As recently as July 28th, Kenyan media was reporting that the Tuskys board had just agreed a search for a new investor. The speed at which Tuskys has found a short term loan suggests that the retailer has offered very favourable terms. Tuskys has not been able, so far, to get a loan from banks, leaving it on the verge of outright collapse.

Tuskys is under severe pressure because it is unable to pay its suppliers, increasingly leaving its shelves empty as lines of credit have dried up. In July, New Kenya Cooperative Creameries (New KCC) stopped supplying milk to Tuskys over non-payment on deliveries. Tuskys is also being investigated for abuse of buyer power by the Competition Authority of Kenya (CAK) for failing to pay suppliers. Tuskys owes suppliers  Sh6.2bn ($57.2m). It claims to have agreed to pay 40% cent of its supplier debt, Sh2.4bn ($22.2m) over the next two years. Last week, Tuskys was forced to pay Sh15m ($0.14m) of its Sh26m ($0.24m) rent arrears for United Mall outlet in Kisumu County after bailiffs entered the store.

The loan will be used to prepare the business for sale to a strategic investor. Tuskys has not disclosed if the debt is convertible to equity. We believe it probably will be convertible. It’s another twist in a saga of a failing retailer that has long threatened to follow Nakumatt to collapse.

It is still a big question how Tuskys recovers itself given the management problems, broken promises and family feud that have helped cause its financial crisis. At a time when retailers including Choppies and Shoprite are closing stores, and three major rivals (Naivas, Carrefour and Quickmart) are expanding, Tuskys faces an uphill battle to trade its way back to success. In April and May this year, sales at Tuskys fell by 35%.

Our analysis is that this scenario of trading back to success is unlikely.

However, Tuskys is branding its next few months as a comeback apparently seeking to re-open closed outlets. It also has a new customer rewards programme called ‘Tuskys Back-to-Back Sale’. It is also being forced by the CAK to deposit revenues in an escrow account to pay off suppliers. So far, it claims 100% have signed up to its new trading platform using the escrow system and Tuskys claims that it has been provided with a stock guarantee worth Sh1.2bn ($11m) by leading suppliers.

The question of which Mauritius-based PE firm has invested in Tuskys is also interesting.

For a strategic investor, the goodwill in the Tuskys brand is important but diminishing – customers learned to live without Nakumatt, which had been the largest supermarket chain in Kenya. The longer the retailer’s financial crisis goes on, the less likely it is that someone will step in to rescue it. Competitiors can sit by  and watch, ready to pick off store locations they want to take on.

Any future owner will need to be approved by Kenya’s Competition Commission. Mauritius is a popular destination for investment funds, who like its ease of doing business and mature, stable regulatory investment fund framework. Mauritius markets itself as a gateway for investment in Africa, promising low tax rates and “tax treaties” with several countries. One of the largest Africa-focused funds based in Mauritius is Adenia Partners, which bought Kenyan supermarket chains Tumani and Quickmart in 2018, merging and expanding their networks to become a major player in the Kenyan retail sector.