Companies

Tuskys keeps watchdog in the dark over mystery offshore investor

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Tuskys Supermarket along Kenyatta Avenue in Nairobi on July 18, 2019. PHOTO | EVANS HABIL | NMG

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Summary

  • The Competition Authority of Kenya (CAK) says Tuskys went quiet and failed to reveal the identity of the fund based in tax-haven Cayman Islands more than 16 months after the retailer announced a financing deal.
  • The authority had in July last year said it would decide within two weeks on any investment proposal by Tuskys, accelerating a process that usually takes months.
  • Tuskys was ordered by the competition watchdog to clear supplier bills worth Sh2.77 billion in June last year under new rules to cushion suppliers from delays.

The competition watchdog has revealed it is in the dark over the mystery offshore investor seeking to buy out the cash-strapped supermarket chain Tuskys amid doubts over the existence of the Sh2.1 billion deal.

The Competition Authority of Kenya (CAK) says Tuskys went quiet and failed to reveal the identity of the fund based in tax-haven Cayman Islands more than 16 months after the retailer announced a financing deal.

The authority had in July last year said it would decide within two weeks on any investment proposal by Tuskys, accelerating a process that usually takes months.

The retailer has rejected a creditors petition in court to reveal the offshore investor.

“They came and told us they were getting a strategic investor and I never saw them again,” Wang’ombe Kariuki, the director-general of the CAK, told the Business Daily in an interview.

“But at least in terms of our intervention we were able to recover above Sh2.5 billion for about 250 suppliers and I can say this is not the same situation that happened during Nakumatt.”

Nakumatt, which grew from a mattress shop in Nakuru to have branches across East Africa, was forced to shut down last year as it struggled to repay its suppliers, landlords and other creditors.

Tuskys was ordered by the competition watchdog to clear supplier bills worth Sh2.77 billion in June last year under new rules to cushion suppliers from delays.

Creditors led by electronics firm Hotpoint Appliances have petitioned Tuskys in court to reveal the identity of the financier, suggesting the retailer is using the Sh2.1 billion deal to delay a suit where more than 60 creditors are pushing for its liquidation over unpaid supplies.

They are also seeking details of the loan agreement, including interest rate, repayment period and whether or not it is secured.

Tuskys says it will not reveal the identity of the investor and terms of the financing transaction, which was last August fronted as a quick-fix deal aimed at stabilising operations and making it more attractive for an acquisition.

“That as is custom in similar transactions, the applicant is unable to disclose the identity of its investor or specifics surrounding the terms and conditions of the transactional documents before financial closing owing to a non-disclosure agreement,” Tuskys acting CEO Shadwick Okumu said in a reply to the court filing.

“A disclosure despite these terms would be in bad faith and would jeopardise the entire transaction.”

The retailer’s opposition to naming the offshore fund emerged in the suit where the creditors led by Hotpoint Appliances are pushing for liquidation of the supermarket chain over a Sh1.02 billion debt.

Tuskys’ total debts, including bank loans, are in excess of Sh10 billion and lenders have cut fresh credit lines.

The creditors are pushing for disclosures on the Sh2.1 billion deal that is key to the survival of the retail chain.

Since announcing the Sh2.1 billion deal, Tuskys has been losing employees, stores, customers and suppliers as its cash troubles worsened.

Tuskys, until recently Kenya’s top retailer with 53 stores, has less than 10 outlets operating amid stock-outs.

At its peak, the retailer was an acquisition target for global giants seeking a foothold in East Africa such as Walmart.

The investor intending to provide Tuskys with the Sh2 billion loan sought to secure the debt using all of the supermarket operator’s shares, putting the ownership of the existing shareholders at risk in the event of default.

The unnamed investor, based in the tax-haven Cayman Islands, was ready to disburse the funds but demanded Tuskys’ shareholders approve the deal, including committing the shares.

This forced Tusker Mattresses Limited, the owner of the Tuskys brand, to summon a shareholder meeting in September last year to approve the use of the shares as security for the debt.

Two minority shareholders of Tuskys are seeking to sell their combined stake of 27.5 percent in the retailer, taking a different path from that of their siblings who voted to obtain a Sh2.1 billion loan to rescue the company.

Orakam Holdings — the investment vehicle which fully owns Tuskys — said a majority of its shareholders approved the raising of the debt from an offshore fund.

The debt will be secured by shares of its investors controlling an aggregate stake of 72.5 percent, putting the shares at risk in the event of default.

But Yusuf Mugweru, who owns a 17.5 percent stake in Tuskys, and his sibling — controlling 10 percent of the retailer — want to sell their shares to the offshore fund or any other investor. Tuskys’ move to seek financing from a PE firm comes after the retailer exhausted its local bank credit lines.

The supermarket chain has pleaded with the court to freeze the liquidation cases for one year and allow it to continue repaying the debts, arguing that its financial position remains redeemable and its business commercially viable.

Kenya’s retail sector has seen two major supermarket chains collapse in recent years, while Carrefour franchisee Majid al Futtaim has entered the market and grown into the second biggest retailer in just four years.

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