The Treasury has lined up a Sh500 million cash bailout for ailing supermarket chain Uchumi, in yet another government-backed rescue plan for the retailer.
Uchumi’s proposed rescue package is contained in this year’s supplementary Budget estimates tabled in the National Assembly on Thursday last week.
The government owns a 14.67 per cent stake in the loss-making Uchumi and is the second biggest shareholder behind tier III lender Jamii Bora, which controls 14.90 per cent of the retail chain.
The Nairobi bourse listed retailer mid this year survived a winding up suit and is currently battling headwinds such as frequent stock outs, Sh3.6 billion suppliers’ dues, and debts to lenders amounting to Sh2.5 billion as at half year to December 2015.
Treasury Secretary Henry Rotich termed the Sh500 million bailout package as “equity participation”—which however does not explain whether it will be in the form of a rights issue or a shareholder loan.
Uchumi chief executive Julius Kipng’etich had not responded to our requests for comment on the issue by the time of going to press. The Uchumi bailout comes after the company’s search for a deep-pocketed investor to inject up to Sh5 billion in exchange for a controlling stake fell through.
Uchumi had also resorted to asset sales to ease its cash position, putting up for sale the Ngong Road branch, Lang’ata Hyper store, and a 20-acre plot in Kasarani — but was faced with low offers and legal encumbrances such as contested ownership of two of the parcels.
The cash-strapped retailer has historically grappled with high debt and was declared insolvent on May 30 2006 and subsequently suspended from trading at the Nairobi Securities Exchange.
It was readmitted on the Nairobi bourse May 31, 2011, having received Sh675 million from taxpayers in a recovery plan fronted by government, and a further conversion of supplier debts to equity.
The retailer was placed under statutory management between 2006 and 2011, under the weight of a Sh956 million loan owed to KCB and PTA.
The supermarket chain at the time owed Sh266.7 million to suppliers. Uchumi has already slipped into a negative net asset position, with a debt load of Sh6.3 billion against a total asset base of Sh6.1 billion as per half-year financial statements to December 2015.