Uchumi postpones rights issue as share hits two-year low

Uchumi, whose shares are trading at a two-year low, could be set for a respite following the postponement of the retailers rights issue to September.

Analysts had blamed the rights issue as one of the major causes of the supermarket chain’s share price erosion because of investors deferring demand for the stock in anticipation of the discounted issue price.

Uchumi traded Thursday at Sh12.45 a share, the lowest level since April 2012. The price was about half the one-year high of Sh24 reached in April last year.

The share has dropped from Sh20 since the rights issue was approved in December last year.

Analysts see the share approaching its lower price target, following a sustained decline of 40 per cent price value over the past one year, the most rapid being in the past three months.

READ: Uchumi stock continues downslide ahead of rights issue

Old Mutual Securities head of research Eric Munywoki said the retailer was forced to postpone the rights issue because it would not have met its target of raising Sh1.5 billion from the sale of 100 million shares with the depressed prices.

“The capital expenditure for the expansion is a one-off cost. Looking at the overall performance of the chain, and the big range of the decline from Sh24, the likelihood is an upturn in price,” said Mr Munywoki.

Uchumi is in the middle of an expansion drive which will see the retailer open stores in Tanzania, Rwanda, South Sudan and Kenya this year.

Proceeds of the rights issue will be directed towards the establishment of South Sudan and Rwanda stores. The outlets in Kenya will increase to 27 with the opening of the Kisumu branch next week.

ICDC loan

The lender has already taken a Sh300 million loan from the Industrial and Commercial Development Corporation (ICDC) to fund the expansion plans because of delays in floating the rights.

The issue was to be rolled out by the end of this month subject to approvals by the regulator Kenya Markets Authority.

Uchumi was yet to disclose the offer price but it is usually derived from a six-month weighted average share price before the desired discount or premium is added.

“We will have to wait to see what the share price will look like nearer the date of the rights issue. If it does not improve, they may be forced to take up more debt to cover the shortfall in the target,” said Sterling Capital research analyst Maureen Kirigua.

The government, Uchumi’s largest shareholder, has said it will take up its entire stake in the rights issue.

Uchumi is facing intense competition with fellow big retailers Nakumatt, Tuskys and Naivas also effecting expansion projects.