Uchumi Supermarkets is looking for a strategic investor to take a controlling stake in the retailer in exchange for a Sh5 billion capital injection.
The retailer has disclosed the fundraising plan in special resolutions it is set to table for ratification by shareholders at its AGM scheduled for January 20, 2016.
Uchumi says the cash may be raised in form of equity or convertible debt and even a combination of both, a move that will result in a major dilution of current shareholders as the new investor could assume a controlling or majority ownership of the retailer.
The announcement comes at a time when the Nairobi Securities Exchange-listed firm is battling to reverse losses and regain market share after a string of strategic blunders that have been blamed on its previous board and management.
“The directors are hereby authorised to identity and negotiate with any suitable investor to raise any sum up to a maximum of Sh5 billion… by way of debt capital through the issue of convertible debt instruments or by way of equity capital by way of private transfer of shares in Uchumi to the investor or a combination of both options,” reads part of the resolution.
The company says its directors shall determine the terms of the transaction. Uchumi plans to create an additional one billion shares to accommodate the new investor, which will more than double its current authorised shares of 900 million units.
It has so far issued only 364.9 million shares, with the volume of new shares to be created and the funds sought indicating that the strategic investor could end up as the controlling or majority owner of the company.
The Sh5 billion cash infusion is 54 per cent higher than the company’s market capitalisation of Sh3.2 billion.
The Uchumi stock on Tuesday closed trading at Sh8.9 apiece, gaining 5.3 per cent compared to the previous day.
The stock has lost 10 per cent of its value since the beginning of the year. The entry of a deep-pocketed investor could see the crop of current shareholders take a large dilution, with the transaction having the potential of effecting a boardroom change at the retailer.
Jamii Bora Bank, which has been behind the recent management overhaul and strategic changes at Uchumi, is the single largest shareholder with a 15.7 per cent stake acquired over the past one year.
The bank’s purchase of Uchumi shares relegated the government to second, with Treasury’s equity now at 14.6 per cent. Jamii Bora shareholders and directors –Sam Kimani and Timothy Kabiru— also hold personal stakes in the retailer.
Mr Kimani has 1.1 million Uchumi shares, equivalent to a 0.3 per cent stake while Mr Kabiru holds 2.5 million shares amounting to a 0.7 per cent shareholding of the retailer.
Other prominent investors of Uchumi are businessman Paul Wanderi Ndung’u with a 5.3 per cent stake and investment banker Jimnah Mbaru whose equity stands at 0.1 per cent.
Former Uchumi CEO Jonathan Ciano, who was forced out of Uchumi earlier this year, holds a 0.1 per cent stake in the company.
Part of the cash to be raised is expected to be used in repaying the retailer’s debts that have significantly contributed to its losses.
Uchumi’s finance costs increased more than five-fold to Sh335.8 million in the year ended June, reflecting the impact of a 52 per cent jump in liabilities to Sh5.1 billion in the same period.
The retailer made a net loss of Sh3.4 billion in the period, reversing the net profit of Sh364.3 million a year earlier.
Its sales had dropped 10.3 per cent to Sh12.9 billion while operating expenses increased by a third to Sh4.8 billion, also contributing to the loss.