A New York-based private equity fund’s bid for a Sh3.5 billion stake in Uchumi Supermarkets #ticker:UCHM has collapsed, putting an Asian investor in pole position to buy into the struggling retail chain.
Kuramo Capital, which is also the single-largest shareholder of NSE-listed investment firm TransCentury #ticker:ICDC, has since early last year been in quiet negotiations to take over a significant stake in Uchumi.
The PE fund is said to have even gone as far as commencing due diligence on the business and looked all set to pump in the much-needed capital until just about a week ago.
“The discussions with Kuramo fell through. We are talking to a new equity investor from Asia. I cannot give more details about the new potential investor or why Kuramo left,” said a source close to the ongoing negotiations who requested anonymity citing regulatory restrictions.
Details of the Asian investor, however, remain scanty, as our source remained tight-lipped on the matter fearing reprisals from the capital markets regulator.
Uchumi is a public-owned company whose shares are traded at the Nairobi Securities Exchange (NSE) #ticker:NSE.
Jamii Bora Bank and the Treasury are among the retailer’s biggest institutional shareholders.
The funds from the sale of a stake are meant to help Uchumi resuscitate its business by clearing huge debts owed to suppliers and financiers and restocking its business.
Heavy debts and stock-outs have left Uchumi’s Kenyan operations in a precarious state and forced it to exit Tanzania and Uganda. The retailer, however, received a Sh700 million cash injection from the Treasury just before Christmas, which it used to restock its branches in time for the festive season.
The cash-rich Kuramo, which controls a portfolio sized at over $300 million (Sh30.9 billion), is said to have dropped its bid for Uchumi after failing to reach a consensus on when it would inject funds as a show of commitment to saving the business.
The Treasury’s intention to sell all or part of its 14.67 per cent stake after the retailer stabilises may have been another prickly subject during the talks, with private investors possibly seeing the government’s continued presence as an extra layer of protection of their interests.
The injection of funds from a private investor, which the retailer plans to buttress with Sh3 billion expected from ongoing sale of its land in Kasarani, has been on the cards over the past 12 months.
Former chief executive officer Julius Kipng’etich, his replacement (in an acting capacity) Mohamed Ahmed and Andrew Dixon, the firm’s chief operating officer, have all on separate occasions signalled that the deal was near completion.
In December, during the restocking of several Uchumi stores in Nairobi following the release of the Treasury bailout, the retailer’s management said it expected the fresh capital from to hit its account “by the end of January.” By March, Uchumi expected to have cleared its debts.
These timelines have now been thrown in disarray as the new potential investor is now set to commence due diligence on the business on Monday, January 8.
“The new interested party will take up to 120 days to complete the due diligence after which we anticipate that they will decide to invest in the business,” our source said.
When contacted for comment on Kuramo’s departure from the negotiating table, Trade and Industry secretary Adan Mohamed and his principal secretary, Chris Kiptoo, confirmed that Uchumi had been in advanced talks with the equity fund.
But they both claimed not to have knowledge of the negotiations with Kuramo having fallen through, with Mr Mohamed adding that such an eventuality would be “normal in such kinds of negotiations.”
“At the moment, the government is committed to helping Uchumi remain open and come back to life. Uchumi’s board is the one concerned with getting an investor,” Mr Mohamed said in a telephone interview.
Kuramo, which in 2016 bailed out TransCentury with Sh2 billion in return for a 25 per cent stake, has over 21 investments across the continent, including in other funds like Catalyst Fund, Helios and Verod Capital Management.
The PE firm, which has offices in Kenya and Nigeria, is financed by endowments and foundations. It has about 15 limited partners located in the United States, Europe and South Africa.
The fund’s chief executive, Shaka Kariuki, was not available for comment when the Business Daily reached out to him.
Kuramo’s stepback from the Uchumi deal means that the spirited fight by the government to spare the retailer from a sure death will take longer than had been anticipated.
The Treasury — which owns a 14 per cent stake in the business — last month released Sh700 million to the NSE-listed retailer, money which was expended restocking the business, paying suppliers and settling employee wages.
The government is set to spend another Sh364 million on settling dues the retailer owes 300 suppliers in Tanzania following its exit from the market three years ago.
For Uchumi to remain a going concern it requires an injection of at least Sh6.5 billion which it expects to raise from the strategic investor and sale of 20 acres of Kasarani land.