Uchumi tells creditors to take Sh2.5bn haircut

Cash-strapped Uchumi Supermarkets #ticker:UCHUM has given its suppliers and bankers creditors two stark choices; either take 30 percent of what the retailer owes them – and give up an estimated Sh2.5 billion in debts owed to them – or, failing that, be prepared to lose all their money.

In a proposed recovery plan filed in court, the retail chain reveals that it is in a deep financial hole and will only survive if its creditors agree to forfeit 70 percent of their total claims estimated at about Sh3.6 billion.

The court submissions show that Uchumi’s assets that are earmarked for liquidation are not enough to repay the debt. It also shows that the total claims against it will only be known after a reconciliation with the creditors.

“It is believed that the verification will result in reduction of the amounts owed, thereby paving way for negotiations to obtain a 70 percent discount on the final agreed payable amount,” reads the report signed by Owen Koimburi, the firm’s newly-appointed provisional supervisor.

Mr Koimburi was appointed by Uchumi directors to supervise the implementation of the Company’s Voluntary Arrangement (CVA), which is supposed to restructure the debt and chart a recovery path.

Uchumi is asking the court to give it permission to convene a creditors’ meeting on April 23 for the tabling and discussion of the proposed voluntary arrangement.

“The directors have indicated that it is only under the CVA where the creditors will expect to recover a portion of their debts. If the proposal is rejected by the company’s creditors, the likely effect is that the company will enter into liquidation,” Uchumi says in its submissions.

The filings were made in response to a winding up petition against Uchumi filed in September last year by Githunguri Dairy Farmers Co-operative Society, which is seek­ing to liquidate the retailer over its fail­ure to set­tle a Sh44.8 million debt.

Uchumi’s suppliers, however, reacted sharply to the proposal, in an indication of a likely drawn-out process to the retailer’s rescue.

The Association of Kenya Suppliers chairman, Kimani Rugendo, hit out at the payment plan, saying traders will oppose the payment plan “by all means”.

“We will not agree to that (plan)...We want full payment,” Mr Rugendo said in a phone interview, while maintaining that any payment plan should be “mutually agreed” by all stakeholders.

He demanded a forensic audit of the retailer’s books to establish its “genuine financial position”.

Uchumi further reveals in court papers that it had informally approached KCB #ticker:KCB , its key banker, to discuss the possibility of entering into a deal similar to the one it is offering the suppliers.

“These discussions (with KCB) did not cause the provisional supervisor to change his opinion that there was a reasonable prospect of the CVA being approved and implemented,” the report states, without revealing the outcome.

The firm says there are good prospects of the creditors adopting the proposal.

Githunguri Dairy

Until now, Uchumi has been relying on the winding up petition by Githunguri Dairy to fend off multiple creditors who are scrambling to dispose of its assets to recover debts.

The retail chain in October got a big relief after it obtained court orders suspending all judgments, decrees, attachment of properties or distress for rent claims against it.

Uchumi disclosed that it is fighting a record 45 legal suits before the magistrate’s courts, the High Court and Tribunals - all arising from its inability to pay debts. Over 30 companies have so far joined the winding up petition filed by Githunguri Dairy.

Some of the firms that joined the suit are New Kenya Co-operative Creameries (New KCC) (Sh89 million), Col­gate Palmolive which is owed Sh45.5 million, L’Oreal East Africa (Sh9.6 million), Manji Food Industries (Sh18.6 million), Leading Locks Limited (Sh12.8 million), Insyc Solutions (Sh8.4 million), and Connect IT Limited (Sh1.4 million).

Others are Taroni Holdings Limited (Sh45.1 million), Securitas Limited (Sh39.9 million), Honey Care Limited (Sh2.8 million, Euromart Limited (Sh67.5 million), and Kapa Oil Refineries Limited, which is owed Sh15.3 million.

Chandaria Industries Limited is owed Sh68.7 million, Board of Trustees of Uchumi Supermarkets Limited Staff Provident Fund (Sh122.7 million), Equatorial Nut Processors Limited (Sh21.3 million), Professional Marketing Services Limited (Sh4 million) and Interconsumer Products Limited Sh38.2 million. UBA Bank, which is owed Sh172 million, is already in the suit seeking to dispose of Uchumi’s land on Lang’ata Road to recover the debt.

Separately, household goods company Tropikal Brands Afrika has also sued Uchumi for Sh35 million in unpaid supplies.

Uchumi last November inked a deal with Jewel Complex Limited to sell its Kasarani land at Sh2.8 billion, which offered its suppliers and creditors some hope for a settlement.

The retail chain was banking on the sale of land in Kasarani to turn around its fortunes, but the money has been slow in coming because of what the management described as “challenging approval processes”.

But this deal was also the subject of court proceedings after UBA moved to court seeking transfer of all proceedings from the land sale to the court for purposes of paying all creditors who are enjoined in the ongoing winding up petition.

The High Court in early March, however, dismissed UBA’s application for preservation of the money on the basis that the land is owned by a subsidiary of the retailer that was not party to the court case.

Justice Mary Kasango dismissed the application in which the lender wanted access to proceeds of the sale on grounds that Kasarani Mall Limited is a separate legal entity from Uchumi, which is facing an insolvency petition.