Uchumi raises red flag over shopping mall site grabbing

In February, the government agreed to convert Sh350 million of a Sh757 million debt into shares, earning it an 11 per cent stake in Uchumi Supermarkets. Photo/FREDRICK ONYANGO
In February, the government agreed to convert Sh350 million of a Sh757 million debt into shares, earning it an 11 per cent stake in Uchumi Supermarkets. Photo/FREDRICK ONYANGO 

Uchumi Supermarkets has raised the red flag over the possible sale of its two prime properties in Nairobi earmarked for a shopping mall once the construction of the Thika Highway is completed.

Chief executive Jonathan Ciano says in a buyer beware notice that the firm will develop the mall on the properties measuring 21 acres and carrying a market value of Sh500 million in line with its five-year strategic plan.

The mall would be a welcome addition to the area’s retail experience, filling the void left by the demolition of Nakumatt Thika Road to pave way for the highway’s construction.

Since then residents of Ngumba, Garden Estate, Ridgeways, Thome, Roysambu, Kasarani, Zimmerman, Githurai and Kahawa West who relied on the outlet have made do with convenience stores such as Uchumi Tujenge, Nakumatt Wendani, Naivas, Home Depot, Cleanshelf and smaller marts in estates.

The construction plan is contained in a notice warning investors against interfering with the assets - LR 5875/2 and LR 23393 - next to Thika Road Baptist and the Roysambu Roundabout.

It is also a stone’s throw from Safari Park Hotel and overlooking Moi International Sports Centre, Kasarani.

The caution warns that the two parcels are likely to have been sold to unsuspecting members of the public and that a demarcation on the two plots was planned for last weekend without the company’s knowledge.

“We would like to caution the public that the private property belongs to Uchumi and not for sale,” says the public notice posted in the local dailies.

Mr Ciano is requesting members of the public who have supported the revival of the retail chain to shun the unscrupulous people “seeking to return this country to impunity.”

The construction of the mall would be a crowning moment for Uchumi which since June 2006 has fought off a receivership and is back on the profit trail that would see it relisted on the Nairobi Stock Exchange, allowing investors to trade in its shares again.

“Uchumi has come a long way from that day in June 2006 when the company went into receivership and has grown from strength and it continues to grow with each passing day,” said Mr Ciano.

The company was incorporated in 1975 as an enterprise for equitable distribution of essential commodities, at affordable prices and creating an outlet for the local manufacturers.

In 2000, the company started experiencing financial and operational difficulties occasioned by a sub-optimal expansion strategy coupled with weak internal control systems.

This resulted in a marked diminution of its resources which culminated in its inability to meet its obligations on an ongoing basis.

Initial restructuring of Uchumi did not forestall the deteriorating performance and as a result, on May 31, 2006, the Board of Directors resolved that it ceases operation.

On June 2, 2006 the debenture holders, Eastern and Southern Africa Trade and Development Bank (PTA Bank) and Kenya Commercial Bank (KCB) placed the company under receivership and thereafter, the Capital Markets Authority (CMA) suspended its listing from the Nairobi Stock Exchange (NSE).

Uchumi’s total debt then was Sh2.2 billion, out of which Sh957 million was owed to PTA Bank, KCB and major suppliers.

The government crafted a rescue plan and advanced the retail chain Sh675 million, which had grown to about Sh757 million in January.

In February, the government agreed to convert Sh350 million of a Sh757 million debt into shares, earning it an 11 per cent stake in Uchumi Supermarkets.

The bankers, too, agreed to re-negotiate the terms of the loan, which initially stood at Sh957 million but had dropped to less than Sh100 million—prompting the lifting of receivership that had made the retail chain to be frozen from trading at the NSE.

The debts have hurt the chain’s growth plans including make it difficult to source fresh debt and reduced cash flow, leaving its main rivals-- Tusky’s Supermarket and Nakumatt -- to race ahead in consolidating market share.

This is the market structure that new look Uchumi Supermarket, with a debt free balance sheet, is seeking to reverse with new outlets across the Eastern Africa region.

The Supermarkets recently announced a 154.7 per cent rise in its consolidated pretax profit to Sh433 million for the financial year ended June 30, 2010.

The growth is attributed to increased sales volumes coupled with operational efficiency and focus on key strategies of customer service, maximisation of sales revenues, cost management and recapitalization.

Net sales grew by 16 per cent from Sh8.2 billion in the corresponding period last year to Sh9.6 billion with the gross profit rising to Sh2.1 billion up from Sh1.7 billion in the period under review.

The chain’s total net profit which is inclusive of deferred tax of Sh431.9 million amounted to Sh865 million.

In 2009, the firm recorded a 60.4 per cent increase in profit before taxation for the year ending June 30, 2009.