advertisement

Companies

Trade PS steps in to broker deal with Nakumatt creditors

Nakumatt MD Atul Shah (left) and Trade principal secretary Dr Chris Kiptoo. PHOTOS | FILE
Nakumatt MD Atul Shah (left) and Trade principal secretary Dr Chris Kiptoo. PHOTOS | FILE 

Troubled retail chain Nakumatt has opened government-mediated negotiations with its creditors, aiming to resolve a debt crisis that has pushed it to near collapse.

Trade principal secretary Chris Kiptoo said Nakumatt’s failure to attract a deep-pocketed investor by March has left its owners with two tough options - to liquidate the business or significantly restructure its operations to keep it afloat.

Dr Kiptoo, however, maintained that Nakumatt’s private ownership means it has to independently reach an agreement with its bankers and suppliers – who are owed billions of shillings – with the State merely acting as a mediator.

“The situation is not good. The government is not a Nakumatt shareholder, but my involvement is to see how we can bring all parties to reach an amicable solution,” Dr Kiptoo said.

The PS said the retailer is too big to fail and that its collapse would have serious ramifications on the economy.

“It would be bigger than Chase Bank and Imperial Bank combined. This is why we are working hard to ensure the retailer stays open,” he said.

Nakumatt was expecting a six-week phased injection of Sh7.7 billion from an unnamed private equity fund beginning March, but failure to secure the funding has deepened its long-running challenges such as widespread product stockouts and failure to pay employees.

Restructuring

It has also emerged that Nakumatt has appointed audit firm KPMG to spearhead its restructuring and that the audit firm – with the help of select commercial banks – has set up a special account to handle the retailer’s income and expenses.

Operating a central transactional point means Nakumatt is opening up to outsiders, hoping to offer its creditors assurance that the business is being run professionally.

Opening of this account could see suppliers, some of whom have stopped stocking the retail chain, resume their engagement with Nakumatt on the assurance that the account’s administrator will ensure debts are paid promptly.

In the event that revenue channelled to the account is insufficient to fully settle the retailer’s liabilities, the commercial banks offering the facility will extend an overdraft.

Andrew Dixon, the retailer’s marketing director, said KPMG is working with the retail chain to help refine its restructuring plan.

“KPMG is working with Nakumatt as our appointed advisers on a mutual arrangement to further refine our corporate restructuring strategy,” said Mr Dixon, adding that the requisite account has been established. 

Dr Kiptoo said that he has, on several occasions, met the retailer’s management, suppliers, and bankers and was looking forward to meeting its landlords.

To get out of its current predicament, Nakumatt could pursue a number of options, including issuing equity to reduce debt, selling assets as well as renegotiating loan agreements with its lenders.

Standard Chartered #ticker:SCBK, Diamond Trust Bank #ticker:DTK, KCB Group #ticker:KCB and Bank of Africa are some of Nakumatt’s bankers. The four lenders in late 2015 bankrolled Nakumatt’s expansion in western Kenya where it acquired Yako Supermarkets’ stores in Kakamega, Bungoma and Busia.

Nakumatt recently closed one of its two warehouses on Nairobi’s Mombasa Road and is planning to close several non-performing outlets to rein in its expenses and reduce the liquidity pressure it is facing.

“Any restructuring will be done when there is full disclosure of the situation. People cannot engage without facts,” said Dr Kiptoo, in reference to the appointment of KMPG to spearhead Nakumatt’s turnaround.

“Nakumatt has to do some form of restructuring. They do not have an option. I, however, will not dictate which route they should take but the solution must be long-term.”

Regulate sector

To stem what seem to be perennial problems in the retail sector, the government says the industry needs to be adequately regulated.

Uchumi Supermarkets #ticker:UCHM, which is also experiencing financial constraints that have forced it to divest from Uganda, is looking to voluntarily convert 50 per cent of the debt worth Sh1.8 billion to suppliers into equity.
The loss-making retail chain, which is about 15 per cent owned by the government, has opted for this unorthodox restructuring method in addition to securing funding from a strategic investor.

READ: Uchumi Supermarkets workers yet to be paid May salaries
Last year, the Trade ministry constituted a taskforce – made up of the Kenya Manufacturers Association, and associations representing suppliers and retailers – to interrogate the industry.

Dr Kiptoo said he expects to receive the taskforce report on June 28, allowing the government to roll out a code of practice and regulations that will help bring “stability in the retail industry.”

advertisement