Capital Markets

Uchumi debenture off to a slow start as advisers upbeat

Uchumi

The retail chain’s debenture stock offer opened on Monday.

The Uchumi Supermarkets debenture stock opened to a slow start on Tuesday but market players were optimistic that the offer which is crucial in completing the turnaround of the retail chain would be successful.

A cross section of stockbrokers reported few inquiries from investors in an offer which opened on Monday.

Uchumi is looking to raise Sh1.2 billion from its shareholders through a debenture stock — a debt that is not secured by collateral or physical asset.

The funds are meant to settle its debts and bring to a close its recovery plan, making the success of the offer, which closes on November 15, critical to lifting Uchumi’s receivership tag. This will also pave the way for the shares to resume trading at the stock market.

No response
“We have not seen any response yet but the offer was announced just the other day and we will get the full picture with time,” said Mr Lucas Otieno, CEO, African Alliance Kenya Securities.

The Government lent Uchumi Sh875 million that allowed the retail chain to reopen its doors following its closure on May 31, 2006 after the supermarket buckled under a pile of debt.

Subsequently, the shares were suspended from trading.

The loan from the Government is repayable at the end of November 2009. Uchumi also owed KCB, PTA and suppliers Sh2.2 billion, which has been reduced to Sh287 million.

In the latest fund-raising offer, shareholders were to receive their debenture stock application forms through the post office and returned through the 18 stockbrokers or any Uchumi branch.

Each debenture stock was priced at Sh10 and shareholders were to part with a minimum of Sh3, 000.

The Uchumi advisory committee, which is charged with seeing through the recovery plan, maintains its optimism.

“The applications take a bit of time to get to the shareholders post office,” said Mr James Murigu, a member of Uchumi’s recapitalisation committee. “We still have time but want to start early so that we will be monitoring the progress of the process.”

Some analysts however see the offer competing with other investment opportunities especially the fixed income instruments which are now in vogue.

“People right now are concentrating on the Kengen Bond offer,” said analysts from the CFC Stanbic Financial services.

Power generator Kengen is looking to raise Sh15 billion to fund some of the energy projects meant to enhance its production capacity through a Public Infrastructure Bond Offer (PIBO) that opened on September 8.

Should the shareholders fail to raise the Sh1.2 billion, Mr Jonathan Ciano, — the Uchumi receiver manager — the next option would be to convert the debt into debenture stock.

Uchumi has an estimated 19,000 shareholders who approved the debenture offer in July this year at a special meeting called by the retail chain’s managers. Another option would be to negotiate with the Government, KCB and PTA to extend the duration they have to repay the money.

This would allow the supermarkets chain to plough back its profits to help with the cash flows and expansion.

Competing IPOs
In the first attempt in 2006, Uchumi sought to raise Sh300 million from the shareholders, but got only a tenth of the amount after facing competition for investor funds from a string of initial public offers (IPOs).

The initial public offers for KenGen, AccessKenya and Scangroup were oversubscribed.

A year later, the retail chain turned to existing shareholders to raise Sh650 million, meant to clear old debts amounting to Sh184 million, but only received Sh134 million.