Multinationals delay Uchumi’s plan to swap debt for shares

Seven multinational companies could delay converting their estimated Sh1.2 billion debt into shares of troubled Uchumi Supermarkets as they seek approval from their parent firms, it has emerged.

The multinationals, including soft drinks maker Coca- Cola, said they do not have authority to unilaterally endorse Uchumi’s rescue plan as it may not be in line with parent companies’ policies on debt.

Nairobi Bottlers, a subsidiary of Coca-Cola Sabco, which was enjoined in the suit to wind up Uchumi but later pulled out, said it was consulting its management on how to restructure the debt.

British consumer goods maker Reckitt Benckiser as well as Anglo-Dutch multinational Unilever are some of the international firms currently in negotiations with Uchumi.

Bidco Africa Group, Magnum Limited, Allen and Brookside Dairies are also on the list of suppliers who are yet to confirm participation in the debt restructuring exercise.

“They had said they have to consult with their head offices but we are hoping they will be willing during the Thursday’s meeting when we expect them to report the outcomes of their consultations,” Uchumi boss Julius Kipngetich said.

Association of Kenya Suppliers chairman Kimani Rugendo confirmed that the foreign owned suppliers had asked for time to consult even as Uchumi released timelines for its recovery strategy.

The multinationals account for about a third of Uchumi’s total debt, which translates to Sh1.2 billion of the total Sh3.6 billion debt.

Uchumi management said it intended to have 50 per cent of the debt worth Sh1.8 billion converted to shares and has opened negotiations with some of them to take up even more than half their debt.

“The supplier debt to equity conversion is voluntary. Whereas it is proposed that they convert at least 50 per cent of the outstanding debt to equity, the final decision has been left to suppliers and is expected to vary between zero and 100 per cent,” Mr Kipngetich said.

READ: Uchumi suppliers to get Sh1.8bn stake

Uchumi said the multinationals may opt to freeze their debt and have it cleared under the retailer’s capital raising plan.

Suppliers and Uchumi Supermarkets adopted a deed of settlement to restructure the debt Uchumi owes them so as to resume supplies to the retail chain.

Under the deed of settlement approved by suppliers, the old debt of Sh3.6 billion has been frozen to be settled from the sale of land and buildings, receipt of a loan from the government, and profits when the company breaks even.

The deed provides for terms of converting the debt to equity, the establishment of a suppliers’ council and opening of an escrow account to manage new debt.

Uchumi has slated a supplier’s council meeting next week where an investments banker will advise them on how to convert the debt to equity.

Uchumi plans to offer the suppliers ordinary shares it plans to draw from the one billion shares that were approved for a new investor who was expected to pump in up to Sh5 billion in exchange for a controlling stake in the retail chain.

Converting the debt to shares means the suppliers will be tied to the fate of Uchumi, whose winding up case is yet to be concluded.

Adoption of the deed of settlement should, however, get Uchumi some relief as it is expected to open a new avenue for the suppliers to resume business with the troubled retail chain.

Under the agreement reached last month, the suppliers’ council agreed to resume supplies and receive proceeds directly from the escrow account Uchumi has opened at the Kenya Commercial Bank (KCB), Jamii Bora Bank and United Bank for Africa-Kenya (UBA).

Next week’s meeting will also adopt a charter for indoor management to ring fence the suppliers’ goods in case Uchumi is liquidated.

The retailer also got a relief after the Visa Oshwal business community agreed to immediately resume supplying goods to Uchumi and pledged to pull out of the winding up case, according to their statement to newsrooms.

Bimal S. Shah, a director of Broadway Bakery Limited, said that the baker was no longer interested in pursuing the winding up case against Uchumi.

Under the agreement, the Oshwal community is to nominate two members to the Suppliers’ Council, established under the Deed of Settlement between the retail chain and its suppliers.

Mr Shah said the community was considering investing in Uchumi and compete with the rest of potential investors, who have expressed interest. 

Uchumi’s road to recovery is, however, hampered by KCB’s hesitation to release proceeds of the sale of Ngong Hyper Supermarket.

KCB holds the charge to Ngong Hyper Supermarket that Uchumi sold for Sh1.4 billion, but has been unwilling to allow proceeds of its sale to reach the retailer.

Uchumi owes KCB Sh900 million and has been holding onto Sh400 million from the sale despite agreeing to give Uchumi its share of the transaction.