Companies

Tuskys reveals Sh6.2 billion supplier debts

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Summary

  • Supermarket chain Tuskys owes suppliers a total of Sh6.2 billion, with the retailer saying it has reached an agreement to pay 40 percent of the amount (Sh2.4 billion) over two years.
  • The company is currently being watched by the Competition Authority of Kenya (CAK) after it defaulted on suppliers, a move that resulted in stockouts and closure of some of its branches.
  • The revelation comes after Tuskys paid suppliers Sh2.7 billion in June after the intervention of CAK which has in recent months focused on abuse of buyer power in the retail business.

Supermarket chain Tuskys owes suppliers a total of Sh6.2 billion, with the retailer saying it has reached an agreement to pay 40 percent of the amount (Sh2.4 billion) over two years.

The company is currently being watched by the Competition Authority of Kenya (CAK) after it defaulted on suppliers, a move that resulted in stockouts and closure of some of its branches.

“Total trade supplier debt is Sh6.2 billion. As at August 6, 2020, 40 percent of this supplier debt has been rescheduled and the respective suppliers have signed individual agreements to reschedule the debt to periods between eight months and 24 months,” Tuskys wrote to the regulator on August 7, 2020.

“Having these debts rescheduled and restructured, allows Tuskys time to reorganise cash flows and meet supplier obligations.”

The company added that suppliers have agreed to deliver additional merchandise worth Sh1.2 billion, with goods valued at Sh200 million already supplied.

The revelation comes after Tuskys paid suppliers Sh2.7 billion in June after the intervention of CAK which has in recent months focused on abuse of buyer power in the retail business.

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.

Tuskys became the first major retailer to face the scrutiny of CAK’s Buyer Power Department that was created after former supermarket giant Nakumatt Holdings went under with Sh18.5 billion of supplier debt.

Nakumatt’s total liabilities amounted to Sh35.8 billion including bank loans (Sh6.9 billion) and commercial paper (Sh4.7 billion).

The CAK started looking into Tuskys’ operations in April after reports emerged that it was not paying suppliers on time as provided for in their respective contracts. The fact that the regulator is monitoring Tuskys’ operations is expected to give confidence to suppliers, some whose business with the retailer runs into hundreds of millions of shillings per year.

Paying suppliers on time will see the retailer regain operational freedom from the removal of restrictions imposed by the regulator. Among other things, CAK ordered Tuskys to seek its approval before opening new branches or going into new ventures.

The retailer says it is still keen on raising new capital from a strategic investor, adding that suppliers’ funds are now ring-fenced in special bank accounts.

“The shareholders are evaluating offers from investors for injection of capital through sale of a stake in the business,” Tuskys said in the letter.

“We further reiterate our commitment to make the necessary regulatory submissions at the appropriate moment, and we continue to enjoy the counsel of a reputable transaction adviser and a panel of legal advisors well versed with the complexity of such transactions.”

Tuskys has not said how much it intends to raise in the proposed deal but it has estimated that it needs at least Sh2 billion to survive in the short term.

DTB Bank #ticker:DTK extended the retailer’s credit facility pending the raising of new funds from the strategic investor.

Tuskys says it is holding weekly meetings with suppliers as part of its debt management efforts.