Uchumi Supermarkets has been granted approval for its Company Voluntary Arrangement (CVA). It now has six months to settle its Sh4.7bn ($44m) debts to 121 suppliers or face auction of its assets by creditors and eviction by its landlords. Can it beat the odds? We don’t think so.
Despite opposition from UBA Bank, the Kenyan High Court has allowed the implementation of the Company Voluntary Arrangement (CVA) that 121 suppliers agreed to in March. Under the terms of the CVA, Uchumi’s creditors will get only 30 cents for each shilling owed.
Uchumi had hoped to pay some of its debts with the sale of a 20 acre piece of land in Roysambu, an area in Nairobi. But the Kenyan Army occupied the land in April 2019 and claimed it was compulsorily acquired in 1985 for a military base.
The official press release from Uchumi, which sees the six month reprieve as a boost, is optimistic in the extreme. It says that “as part of the CVA, Uchumi will look into new business models including but not limited to implementing digital strategies, moving into the convenience store model and adopting cost leadership strategies.”
How will it fund these transformational changes? At the moment it can’t. It also can’t trade its way back to profitability.
Uchumi has been seeking to leverage its brand and operational capabilities with a franchised convenience store model for the past year. Another ailing Kenyan retailer, Tuskys, has also talked about opening new franchised stores. It hasn’t.
CEO Mohamed Mohamed has said that the company continues to search for strategic partners and other potential investors. As with Tuskys now, and Nakumatt before it collapsed, this is a familiar refrain. It is vanishingly unlikely to happen. Retailers already in Kenya can simply wait for Uchumi to collapse and pick up any remaining assets. Uchumi has been hunting for an investor for some time but the scale of its debt, the lack of financial management that led to its problems, and the low value of what they would be buying all work against Uchumi.
There are also several more viable investment opportunities among other local chains in Kenya. A potential investor would also have to be confident entering a market which has proven extremely competitive: Nakumatt has exited. Choppies has exited. Shoprite looks like it will exit. Tuskys is also on life support.
Uchumi has been on life support for years. Indeed, many in the industry already think it has finally gone, for good. It will take a Christmas miracle for Uchumi to have recovered and be back on track in six months’ time.
