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Nakumatt seeks deep pocketed investor to buy 25 per cent stake

Nakumatt managing director Atul Shah. PHOTO | FILE
Nakumatt managing director Atul Shah. PHOTO | FILE  

Retail chain Nakumatt is closing in on a deal to sell a significant stake to a strategic investor in what insiders said is part of a plan to retire the supermarket chain’s rising debt burden.

Nakumatt, which is Kenya’s biggest retail chain with 61 stores across East Africa, said talks were at an “advanced stage” to sell a 25 per cent stake or more to an investor.

Nakumatt said its owners were on course to finalising the share sale — which has been in the works since 2009 — in a matter of weeks.

“Barring any eventualities, this deal will be closed in a few weeks with full disclosure once done,” Neel Shah, the business development director at Nakumatt Holdings, told Business Daily in an interview. The executive is a son of Atul Shah, Nakumatt’s managing director.

The family-owned business declined to disclose the identity of the suitors, citing “client confidentiality,” but promised to publicly announce details once the deal is closed.

Nakumatt’s gross debt more than tripled to Sh15 billion in February 2015 from Sh4.2 billion in 2011, piling pressure on operations and resulting in long payment delays to suppliers.

“This equity fund will help retire existing funding tools, including bank loans and related debts,” said Mr Shah.

The planned sale of a stake to the strategic investor was mooted in 2009 when a consortium of investors led by London-based private equity fund Satya Capital — associated with Sudanese billionaire Mo Ibrahim — expressed interest but the deal fell through.

Nakumatt’s decision to tie-up with a strategic investor means the retail chain has abandoned earlier plans to raise capital through an initial public offering at the Nairobi Securities Exchange.

Family-owned

Kenya’s top-tier retailers — Nakumatt, Tuskys and Naivas — are family-owned, making them prime targets for acquisition by PE funds and foreign supermarket chains.

Troubled Uchumi Supermarkets is the only listed retailer in East Africa.

Nakumatt, with 42 outlets in Kenya, is majority-owned by the Shah family (92.3 per cent) and Hotnet Ltd — a company associated with former Kilome MP John Harun Mwau.

This means the sale of a 25 per cent stake will still leave the Shah family as majority shareholder.

South African rating agency GCR said in a note dated December 17, 2015 that the deal would see substantial capital injected into the business, a feat that would markedly ease funding pressure and facilitate the planned rollout of new branches.

Nakumatt’s gross sales grew by nearly a tenth to Sh51.6 billion for the year ended February 2015 compared to Sh48 billion a year earlier.

Surging finance costs have, however, eaten into the supermarket’s earnings, with gross profit plunging to Sh305 million in February 2015 compared to Sh823 million in 2013.

Kenyan retailers are currently battling strong headwinds related to unpaid bills to suppliers.

Supermarkets are also struggling to finance working capital from costly bank loans in a race to open new branches to fend off increasing competition from foreign players such as South Africa’s Game, French chain Carrefour, and Botswana’s Choppies.

“Whilst capex costs have been high, the greater utilisation of debt has come from the working capital funding necessary to purchase stock for new stores,” said GCR.

Debts to suppliers

Nakumatt, Tuskys and Naivas jointly owed suppliers Sh8 billion in unpaid dues in September last year. Some of the payments date back to early 2014.

A Nakumatt supplier, who requested anonymity, told the Business Daily that Nakumatt had more than tripled its credit period to between 180 and 270 days from the average 90.

The suppliers also claimed that the retail chain had resorted to issuing them postdated cheques but Nakumatt said that was not the standard mode of operation.

“Where delays on payments have occurred, we have not shied away from explaining ourselves,” the retail chain said in response to our queries.

Nakumatt said the cash crunch had seen some overdue amounts “rescheduled by mutual engagements with various suppliers who appreciate the prevailing challenges”. 

“With the ongoing financial re-engineering engagements, we are confident that the overall debt will fall once we conclude an alternative financing structure,” said the retailer.

Rival Uchumi, which recently survived a winding-up suit linked to mounting overdue payments, owes suppliers a total of Sh3.6 billion and has been forced to rely on short-term bank loans for working capital.

Uchumi has historically grappled with suppliers’ dues and mounting debts, which led to the listed retailer being declared insolvent on May 30, 2006 and subsequently suspended from trading at the Nairobi bourse. It was only readmitted on May 31, 2011.

Botswana and Johannesburg Stock Exchange-listed Choppies last year acquired a 75 per cent stake in Ukwala Supermarkets, becoming the first foreign investor to successfully enter Kenya’s retail market through an acquisition.

South Africa’s Massmart resorted to setting up its own store under the ‘Game’ brand at Garden City Mall after a bid to buy a majority stake in third-placed Naivas Supermarkets collapsed in 2014 amid sibling squabbles over inheritance.

French firm Carrefour made a greenfield entry to Kenya with a store at The Hub Karen and plans another outlet at Two Rivers mall.

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