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Capital Markets

State eyes more Uchumi shares in upcoming offer

Customers shop at Uchumi Supermarket. Photo/FILE
Customers shop at Uchumi Supermarket. Photo/FILE 

The Treasury could acquire more shares in Uchumi Supermarkets if some of the current shareholders sit out their rights in the retailer’s forthcoming cash call.

Finance minister Njeru Githae said in an interview on Friday the government is ready to take up any shares that remain unsubscribed in the supermarket’s rights issue due next year.

The share sale is expected to raise about Sh1.5 billion.

Mr Githae’s statement is yet another confirmation of the Treasury’s commitment to remain an anchor shareholder of the retailer that five years ago collapsed under the weight of bank loans.

 “Uchumi is a good investment and the government will not mind increasing its holding through the rights issue, the investment is promising since Uchumi has started paying dividends,” said Mr Githae.

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The Treasury is however yet to discuss with management of the retailer the possibility of it acquiring more shares. The Government controls a 13.4 per cent stake in Uchumi .

 “We will be having a discussion with the management before the AGM,” said Mr Githae.

In an interview earlier this month, the finance minister had said the Treasury is in Uchumi for the long haul.

The retailer’s share price has gained 144.3 per cent over the past one year to trade at 19.6 on Friday.

The price of the issue is yet to be fixed. Analysts such as Standard Investment Bank expect the company to use the new cash to fund regional expansion.

Uchumi has recently opened its first branch in Tanzania, three additional outlets in Uganda and one more in Kenya, taking its total branch network to 24.

The Government has stood behind the retail chain since its collapse in mid-2006 under the weight of a Sh2 billion debt owed to suppliers and bankers.

Treasury lent Uchumi Sh757 million to finance its revival as a bulwark in the retail market critical in warding off monopolistic practices by other private supermarkets.

Uchumi’s collapse saw its rivals such as Nakumatt and Tuskys gain market share and the retailer is fighting to regain its place as one of the largest players in the highly competitive market.

The government loan, which was part of a total credit of Sh875 million advanced to Uchumi, was to be repaid once the business returned to profitability and tapped a strategic equity partner to take over the government’s stake.

The State however converted Sh350 million of its loan into equity in February last year, acquiring a 13.4 per cent stake in the retailer.

The Ministry of Trade, the custodian of the government’s stake in the company, had in May last year said it planned to dispose of its shares a year after the retail chain’s return to the trading floor of the Nairobi Securities Exchange (NSE).

But the Government has since decided to remain a key shareholder in Uchumi and is now looking at upping its stake, a move that has been linked to the firm’s return to profitability.

The firm posted a net profit of Sh273.9 million from revenues of Sh13.9 billion in the year ended June 2012 compared to a loss of Sh1.2 billion in 2005.
That result enabled the retail chain to end its 10-year dividend drought with a Sh79.6 million payout to shareholders or Sh0.3 per share.

The dividend payout was made despite the steep drop in net profit to Sh273 million from Sh390.4 million the previous year— an outcome that the retail chain has attributed to higher operating costs arising from the opening of new stores.

The Sh79.6 million dividend payout means Uchumi is sharing a third of its net profit with the shareholders who last received a dividend of Sh0.20 in 2002.

However, the retailer has since accumulated reserves of Sh1.3 billion.
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