Owners of Tuskys stop fight over Sh2 billion credit meeting

Tuskys shareholders will on Monday morning hold a crunch meeting to discuss and approve a Sh2.1 billion loan from an offshore fund amid a rare truce among the rowing siblings who own the retail chain.

The main agenda of the extraordinary meeting is to approve the $20 million (Sh2.1 billion) credit and the use of the Tuskys shares as security for the debt, putting the ownership of existing shareholders at risk in the event of default.

Yusuf Mugweru, the fourth born of the seven siblings, had voiced concerns over the use of equity to secure the debt, opacity in Tuskys restructuring and secrecy of the retailer’s debt levels.

He had threatened to scuttle the meeting, which had been fast-tracked via a court petition that on September 17 offered Tuskys’ owners five days to object to the shareholder meet.

“The meeting will go on as planned and there was no objection from my client,” Mr Mugweru’s lawyer, Philip Murgor, said.

“A bit of disclosures were made to my client and he will attend the meeting that seeks to validate the $20 million debt,” Mr Murgor said.

Mr Mugweru, who has a 17.5 percent stake in Tuskys, has been feuding with his siblings over alleged loss of cash in the retailer and need for a forensic audit of the firm’s accounts over the past eight years.

Nearly a decade ago, the retail chain was rocked by a family row that threatened to tear it down and pulled in the third generation heirs, sparking private and public spats.

The unnamed investor, based in the tax haven Cayman Islands, is ready to disburse the Sh2.1 billion loan but wants Tuskys shareholders to approve the deal, including committing the shares.

If they agree to the proposed terms of the loan, the heirs will be betting on the amount to be sufficient to turn around the fortunes of the struggling retailer.

A rebound in profitability will enable the company to repay the debt, releasing the shares to the heirs.

Further deterioration in the retailer’s finances will, however, leave the lender in control of the company in the event the retailer defaults on the loan.

The demand that the loan be secured by all of Tuskys’ shares indicates the lender’s view that the company’s creditworthiness has dropped substantially.

The retailer has been losing employees, stores, customers and suppliers over the past few months as its cash crunch worsened.

Like other big retailers, Tuskys has negligible assets compared to its debt load.

This means that the chances of its lenders getting their money back depends on its ability to continue operating. In good times, retailers have been able to obtain unsecured bank loans running into billions of shillings.

Shoprite, the South African retailer that is exiting the Kenyan market, had for instance taken a Sh1.5 billion unsecured loan from Stanbic Bank Kenya.

Nakumatt Holdings had also obtained Sh6.9 billion unsecured bank loans by the time it collapsed in January 2018.

For months now, shoppers have complained of missing essential goods on the Tuskys’ shelves, suggesting that some suppliers are severing ties with the company.

The retailer is also locked in battle with auctioneers over defaulted rent, underlining the depth of cash flow woes at Kenya’s once leading supermarket.

Tuskys owes suppliers more than Sh7 billion. It is being watched by the Buyer Power Department of the Competition Authority of Kenya (CAK) after it defaulted on supplier payments.

Buyer power means the ability of a purchaser to extract more favourable terms from a supplier on whom it can also impose significant opportunity costs by, for example, delaying payments.