Choppies seals year-long quest for Ukwala takeover

Botswana supermarket chain Choppies Enterprises has finally succeeded in its year-long quest to enter Kenya’s retail space through acquisition of Ukwala Supermarkets stores.

The retailer Monday announced its takeover of eight Ukwala outlets across the country. Three of the stores are in Nairobi, four in Kisumu and one in Bungoma.

Choppies first announced the intention to enter Kenya in May last year.

The transaction was halted by a claim by the Kenya Revenue Authority (KRA), which was demanding Sh946 million in taxes and interest.
The taxman went to court and stopped the planned sale, which dragged the acquisition for months.

Early this year, however, KRA and Ukwala opted to settle the dispute out of court in a deal that would see Ukwala pay Sh59.7 million to the taxman within 30 days, and apply for a waiver of Sh42 million it had racked up in interest and penalties.

The Sh845 million dispute will be heard by the KRA’s tax appeals tribunal.

Besides Kenya, Choppies operates seven distribution centres and 125 retail outlets, comprising 72 stores in Botswana, 35 in South Africa and 18 stores in Zimbabwe.

High-end foreign retailers have taken growing interest in Kenya including the French supermarket chain Carrefour, the Turkish fashion retailer LC Waikiki as well as South African Massmart which opened shop at Garden City mall.

Kenya’s retailers which are already straddled with huge debts are facing major threats from bullish international investors.

READ: Choppies’ Ukwala takeover bid gets boost as KRA ends tax case

Uchumi supermarkets which is courting an international investor owes suppliers Sh3.6 billion, with another Sh2.5 billion debt held by banks with charged assets against a total asset base of Sh6.1 billion.

Last year, South African credit rating agency GCR revealed that Nakumatt’s total debt had more than tripled in four years to Sh15 billion from Sh4.2 billion in 2011.

Kenya’s top three retailers — Nakumatt, Tuskys and Naivas — owed manufacturers Sh8 billion in unpaid dues as at September last year, with some payments dating back to early 2014, the suppliers said then in a protest letter.

“From where I sit as a bank Uchumi’s debt is not the biggest among the retailers so I do not see why it cannot be revived,” Jamii Bora Bank CEO Samuel Kimani told a stakeholder meeting recently.

Suppliers invited by Uchumi to restructure their debt said all supermarkets were not paying their dues. They decided to invigorate a Suppliers association headed by Mr Kimani Rugendo, chairman Association of Kenya Suppliers and negotiate industry-wide terms to get paid on time.

A new law-- the Public Procurement and Asset Disposal Act (2015) -- will force the retailers to pay these debts or incur additional charges for each day defaulted.

READ: Companies face heavy penalties for delaying paying suppliers

Section 140 of the law will require a procuring entity to pay interest on the overdue amounts.

“The interest and liquidated damages to be paid shall be in accordance with prevailing mean commercial lending rate as determined by thr Central Bank of Kenya,” states the law.

“This is a commercially partisan piece of legislation, not useful to the growth of the overall economy at all. Government shouldn’t be involved in advancing economic interests of one set of players at the expense of another, I can only compare it to the Donde Bill,” said Tuskys’ CEO Dan Githua in an earlier interview commenting on the new legislation.

Mr Githua said the retailer will use agreements signed with suppliers to insulate themselves against the law.

“Those trading agreements also called joint business plans are negotiated annually, we do not need external intervention,” said the Tuskys boss.

Late payment of invoices to small businesses has stifled Kenyan enterprises and poses risks to their cash flows, entrenches reliance on costly bank loans, causes job losses, and even bankruptcy.

Treasury Secretary Henry Rotich however said the law is intended to ensure prompt payments, especially to SMEs.