Uchumi investors face longer wait for bourse trade

Investors whose money is locked up in Uchumi Supermarkets will have to wait much longer to trade their shares at the Nairobi Stock Exchange after the Capital Markets Authority maintained the retail chain’s application would be treated as a fresh listing.

The company’s shares were suspended from trading on the bourse following its closure of stores in mid-2006 due to a botched expansion plan that left it with a Sh1.2 billion loss and debts of more than Sh2 billion owed to suppliers and KCB and PTA Bank.

It was anticipated that Uchumi’s shareholders would resume trading at the market soon after the bankers agreed to renegotiate terms of its loans and lift the retail chain from receivership.

But CMA says that Uchumi has to meet the minimum listing requirements before resuming trading.

“The requirements for listing at the NSE are very clear and Uchumi will have to be subjected to them,” said Stella Kilonzo, the chief executive officer of CMA.

Though Uchumi meets the bulk of the listing requirements including being solvent, it has not posted profits in at least three of the past five years — which forms part of the listing requirements.

The chain has announced profits in two of the last five years but is on course to post a profit in the year ending June 2010 given its half year profits of Sh110 million in the six months to December.

As a result, the retail chain will have to wait until August at the earliest for CMA to start work on its application, unless it gets an exemption from the Finance minister.

This means that shareholders in the retail chain will have to wait until the last quarter of the year or first quarter of next year to resume trading at the NSE.

Because of inability to trade shares at the Nairobi bourse, Uchumi’s 12,000 shareholders missed out on massive returns that fellow investors reaped from the market at the peak of the stock market rally in 2007 that ended with the January 2008 post-election violence.

On the flipside, the suspension has also preserved the share from the price erosion that faced many counters after the violence.

The past accumulated losses have also prevented Uchumi from paying dividends despite its improved performance.

As a result, shareholders have been eyeing its return to the market in the hope of making capital gains on their investments.

Its share price stood at Sh14.50 a piece before its suspension from trading on the NSE in mid 2006.

A recent valuation by audit firm KPMG placed a share of the firm at Sh12.

Mr Jonathan Ciano, the chain’s CEO, said that Uchumi has set a board meeting this week to work on the details of the application for its return to the bourse.

Botched expansion

He did not give dates on when the application is expected to land at the CMA’s desk.

In 2000, a botched expansion plan saw the company’s fortunes begin to dwindle, leading to its inability to meet financial obligations on an ongoing basis.

This left it with an accumulated debt of more than Sh2 billion owed to suppliers and bankers, with a huge fraction of them having been paid in the past three years.

The government advanced the retail chain Sh675 million, which has grown to about Sh757 million, after its near collapse.

Though the retail chain has been on the recovery path since the entry of receiver managers in mid 2006, it had been unable to clear the government debt, Sh207 million to shareholders and Sh130 million to the bankers—KCB Bank and PTA Bank.

So far, the government agreed to convert Sh350 million of a Sh757 million debt into shares, giving the state an 11 per cent stake in Uchumi Supermarkets.

The bankers have agreed to re-negotiate the terms of the loan, which initially stood at Sh957 million.

The debts have hurt the chain’s growth plans including make it difficult to source fresh debt and reduced cash flow, leaving its main rivals— Tusky’s Supermarket and Nakumatt — to race ahead in consolidating market share.