Uchumi Supermarkets suppliers could take an equivalent of Sh1.8 billion worth of shares in the proposed debt-for-equity swap, indicating that the proposed strategic investor may not get a majority stake in the retail chain as earlier announced.
Uchumi CEO Julius Kipng’etich Wednesday said the shares to be allocated to suppliers who are owed by the retail chain will be part of the extra stock that was created for allocation to strategic investors who are expected to inject fresh capital into the business.
Uchumi has created an additional one billion shares to accommodate the new investor, who was expected to pump up to Sh5 billion in exchange for a controlling stake.
“Fifty per cent is not available as suppliers will get Sh1.8 billion worth of equity so we will be asking the strategic investor to take slightly less,” said Mr Kipng’etich in an interview.
The Uchumi boss revealed that the transaction advisers have narrowed down to two investors, one local and a foreign firm seeking a piece of the company’s stake.
“If they do not agree to this arrangement then we will offer it to the next one willing to take the balance, the other offer was for stores only and we couldn’t accept it,” he said on the sidelines of a stakeholders meeting that was also attended by Trade principal secretary Chris Kiptoo.
The government, through the Ministry of Trade, is one of Uchumi’s big shareholders.
The retail chain had hired Pamoja Capital as transaction advisers to identify a strategic investor from a list of 36 investors that had expressed interest.
The Sh5 billion fundraising ceiling set by Uchumi is Sh3.7 billion more than the retailer’s market capitalisation of Sh1.3 billion — based on Wednesday’s closing share price of Sh3.7.
Mr Kipng’etich said the investor will have to turn to the stock market to acquire a majority stake, which implies that the extra money will not go into Uchumi’s pockets.
The retailer in 2007 unsuccessfully hunted for a strategic partner after a majority of shareholders refused to lend the retailer more money following its collapse on May 30, 2006.
The troubled retailer is having to deal with creditors seeking to wind it up over pending debts.
The retailer intends to buy time in the winding up suit by disputing the creditors’ claims while allowing ‘friendly’ suppliers to fill its shelves on condition that their goods are not seized by the liquidator if the court rules in favour of the winding up petition.
An affidavit signed by its Chief Financial officer Vincent Opiyo against Ceccagnoli Italiano Ltd which initiated the winding up case, for example, states that the petitioner has not demonstrated its debt claims.
Uchumi also plans to argue that the proportion of the suppliers in favour of the winding up petition is far much lower than the debt owed to other suppliers.
The retailer has rallied the bulk of its creditors and convinced them to change part of their claims into equity and to oppose the suit.
“The supermarkets’ asset base far surpasses the debt in question and it would be unreasonable to wind it up because of such a debt as it is alleged by the petitioner,” Mr Opiyo says in his affidavit.