CMA okays Uchumi plan to raise Sh1bn in November

What you need to know:

Capital Markets Authority approves Uchumi's plan to sell additional shares and try to raise “over Sh1 billion”.
The retailer’s rights offering is scheduled to run about three weeks beginning November 10, ending on the 28th.
Approval comes just weeks after tight cash flows forced the retailer to borrow Sh405 million from Co-op Bank.

Uchumi Supermarkets has been cleared by the Capital Markets Authority (CMA) to sell new shares and try to raise “over Sh1 billion” from its shareholders.

The retailer’s rights offering, scheduled to run about three weeks beginning November 10, is meant to raise additional capital for regional expansion.

In a statement released Friday, the CMA said the retailer’s disclosures complied with regulatory requirements for public offers and listings.

“The submission… is sufficient and contained information that will enable investors make an informed decision,” the statement reads in part.

The approval comes just weeks after tight cash flows forced the retailer to borrow Sh405 million from Co-operative Bank in an “asset financing loan” that was partly intended to pay outstanding amounts owed to suppliers.

READ: Uchumi borrows Sh405m from Co-operative Bank.

Uchumi’s chief executive Jonathan Ciano said he was delighted by the seal of approval from the CMA and the Nairobi Securities Exchange (NSE).

“I call upon our shareholders to exercise their rights as we enter this new and exciting phase of our growth plans,” Dr Ciano said. In earlier interviews, Ciano has said he was hoping to raise “over Sh1 billion”.

“We plan to open more branches across East Africa… and this requires substantial capital expenditure,” he said. “We also want to be able to adequately finance working capital for our subsidiaries.”

Rights issues are offerings in which companies grant shareholders a chance to buy additional shares at a discount to the current trading price. No details on the offering have been released. In trading Friday, Uchumi’s stock was exchanging at Sh9.90, down about 1.5 per cent from Thursday.

The company has picked Faida Investment Bank as lead transaction adviser, Equity Bank as sponsoring broker, Hamilton Harris & Matthew Advocates as legal adviser, Ernst & Young as auditors, ICDC as the share registrar, and Hill and Knowlton Strategies as public relations and advertising consultant.

Uchumi’s profit after-tax for the full year ended June 30 rose 7.6 per cent to Sh384 million, helped by a tax credit that reduced its liability to the Kenya Revenue Authority by Sh64 million. Pre-tax profit fell seven per cent to 452.7 million due to “competition and supply challenges in Uganda and the cost of investment in new branches in Kenya and Tanzania”.