Nakumatt set for share sale to fund expansion projects

Supermarket chain Nakumatt Holdings wants equity investors to buy nearly a quarter of the retailer this year to help support its expansion across East Africa.

Nakumatt managing director Atul Shah is quoted in the firm’s in-house magazine as saying the chain would seek to sell up to 25 per cent of its stake to either institutional or individual investors.

“The family will need to dilute its ownership, currently at more than 90 per cent,” said Mr Shah.

The chain, which targets middle and upper income customers, has 38 branches in Kenya, Uganda, Tanzania and Rwanda, and hopes to open outlets in Djibouti, South Sudan and Burundi.

Nakumatt, which launched in 1965 but has been owned by Shah’s family since 1978, has over the past decade been courted by South African retailers who were keen to reduce their reliance on the southern Africa market.

The retail chain had indicated in April last year that it would start talks from June to bring on board fresh investors to the family-owned supermarket to help fund its expansion after hanging up on Sudanese billionaire Mo Ibrahim in 2009.

Analysts led by Citigroup have identified East Africa as the next growth frontier for global retailers and PEs eyeing retail business.

Mr Shah said Nakumatt’s turnover increased 28.5 per cent to Sh38 billion in the year to June, adding that the chain’s net profit rose 32 per cent to Sh312 million.

Nakumatt’s listed rival Uchumi Supermarkets delivered a profit of Sh273 million on revenues of Sh14 billion for the year ended June 30, 2012.

Nakumatt is currently owned by the Shah family and Hotnet Ltd, a company associated with former Kilome MP Harun Mwau.

Mr Shah said the family would retain majority control of the retailer.

“Despite reducing its stake, the family has no plans to bow out of the business,” he said. Earlier, the retailer said it was keen to sell between 15 per cent and 18 per cent of its shares to equity investors and attract international retailers to take up another 25 per cent to 30 per cent of the company thereafter.

Nakumatt turned to commercial banks for funds after buy-out talks with a consortium led by London-based private equity firm Satya Capital collapsed. Satya Capital is associated with Dr Mo Ibrahim.

The supermarket management wants to attract equity investors rather than rely on costly bank loans, and does not intend to list on the Nairobi bourse in the short term.

“Expansion requires capital and borrowed money is too expensive in Kenya or in Africa in general,” Mr Shah said.

The entry of the world’s biggest retailer, Wal-Mart, into Africa last year after it bought a 51 percent stake in South African Massmart for $2.4 billion is expected to spur foreign investor appetite in the continent’s retail sector.

In Kenya, the retail business is entering a phase of cut-throat competition with new entrants and multi-million shilling expansion plans by supermarkets like Uchumi, Tuskys and Naivas.

Massmart has said it will enter the Kenyan market after the completion Garden City, Kenya’s biggest mall at 50,000 square-metre on Thika Superhighway in December 2014.

(Read: Nakumatt raises Thika Road presence with booking at mall)

Kenya has witnessed multi-billion shilling shopping malls spring up as real estate investors and retailers seek to tap into a growing middle class amid a limited choice of leisure activities.

The malls have food courts, cinemas and luxury clothing lines that offer a concentration of well-heeled shoppers, which is acting as a bait for the top supermarkets.

As the continent’s middle class continues to expand, with more disposable incomes and a refined taste in consumer goods Nakumatt plans to increase the number of branches to 50 across Africa by 2014.

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