Uchumi pays supplier debts ahead of November cash call

Retail chain Uchumi is locked in difficult negotiations with suppliers who are demanding payment of millions of shilling worth of goods delivered to the supermarket more than six months ago.

The negotiations took a new turn last week when the Association of Kenya Suppliers sent a strongly worded letter to Uchumi, demanding immediate settlement of its members’ debts.

The letter, which was addressed to Uchumi managing director Jonathan Ciano, blames the retail chain for failing to keep a promise it had made to settle the debts estimated at more than Sh100 million.

“I am writing to you out of sheer concern due to the numerous calls I have received from members of Association of Kenya Suppliers citing non-settlement of their accounts,” Mr Kimani Rugendo, who chairs the association, said in a letter dated October 16, 2014 to Mr Ciano.

“I have similarly over the past two months made numerous calls to you regarding the same and you have promised to settle using an expected loan approval from Co-operative Bank of Kenya. I believe you have been granted this facility and I am therefore asking you to settle the outstanding accounts,” said Mr Rugendo.

Mr Ciano however denied that there was any dispute with suppliers, insisting that the retail chain had settled the debts.

“For the past one week we have been writing cheques to the concerned suppliers and cleared all the debts,” Mr Ciano said.

He however did not disclose how much money the retail chain owed the suppliers and what amount it had paid to ease the friction between him and his business partners.

By mid last week, differences between the suppliers and the retail chain had reached the shop floors where a number of items were missing from the shelves.

Shoppers at Uchumi’s popular outlet along Nairobi’s Aga Khan Walk, for instance, found popular brands of maize meals and soft drinks missing – a development that Mr Rugendo, the owner of Kevian Industries that makes the popular Afia range of fruit juices, attributed to the troubled relationship with the makers of the goods.

Last month, Cooperative Bank lent Uchumi Sh405 million in form of asset financing to pay the suppliers and keep its expansion plan alive.

Mr Rugendo has demanded that Uchumi calls a special general meeting to discuss the mounting supplier debts, warning that shareholders need to urgently thrash out the concerns before it is too late to save the retail chain.

But Mr Ciano denied receiving any letter from the suppliers and accused Uchumi’s rivals of stirring trouble with the aim of derailing the retail chain’s rights issue slated for next month.

Uchumi has announced plans to raise Sh1 billion to finance its expansion drive.

“Some people are not happy with the progress we are making in terms of expansion. We understand there might be challenges here and there and these are normal occurrences in any business,” said Mr Ciano.

The rights issue is priced at Sh9, amounting to a discount of 10 per cent on the market price for the 99,534,980 shares on sale.

The Capital Markets Authority approved Uchumi’s rights issue on October 3 and the Nairobi Securities Exchange (NSE) granted its approval on October 9.

Trading in the rights commences on November 10 and ends on November 28. The results will be announced on December 17 ahead of trading on December 29.

Uchumi has of late been on a sustained expansion drive both in Kenya and Tanzania where it recently opened three new branches.

The retail chain is constructing a hypermarket on Thika Highway inside Kenyatta University targeting the huge number of students and university workers in the area.

Mr Ciano said Uchumi also plans to open three more branches in Tanzania and one in Uganda to replace the one it closed due to poor location.

“The new branches, including the upcoming ones, cost Uchumi no capital expenditure because we are using asset financing model, which I would like the suppliers to understand,” he said.

Uchumi has of late been facing stiff competition from its main rivals Nakumatt, Tuskys and Naivas supermarkets.