Friday, June 16, 2006

Uchumi Supermarkets Limited (under Chapter 11 Restructuring)
Kenyan Company Laws (a throwback to colonial days) are antiquated & do not allow for an American style Chapter 11 bankruptcy/restructuring process therefore this is simply wishful thinking on my part.

Uchumi Supermarkets Limited (USL) enters into the Ch.11 bankruptcy overseen by a court to keep off unsavoury elements but being Kenya the judge could be just as unsavoury as the crooks! In addition, the judge/courts should be advised by businessmen/experts as to the suitability of any actions.

Anyway, the court initially drives the process with assistance from the current management & major creditors. The judge appoints a "team" to look into each party's claim including secured & unsecured creditors. Precedence is given to secured & larger creditors but the smaller unsecured cerditors are also given a voice. Each creditor can't have a representative but they can collectively choose someone to represent them.

Essentially a new Board of Directors is appointed with the directors being appointed by the judge though nominated as mentioned above. A CEO is chosen to head the management team.

Operational Stability - An agreement is reached as follows:
  • Mastersen-Smith is retained as CEO since he is most familiar with the firm & its problems. If need be he can be replaced later on.
  • Appoint new directors with retail experience e.g. a past CEO like Suresh Shah would be very useful
  • The stores remain open & employees are retained though there may be redundancies if needed to preserve cash
  • The banks agree not to foreclose on the properties. Suspend Interest
  • Landlords agree not to evict USL. Rent abatement for 6 months
  • Suppliers agree to continue supplying USL with generous credit terms in exchange for constant payments
  • Suppliers who continue supplying USL get a bigger say in the running of the "new" USL
  • Government (KRA & Treasury) agree to suspend collection of past due funds incl VAT, PAYE, etc with an eventual view to write these off. This is similar to a tax amnesty.
The above efforts will ensure USL has cashflow thus it can get back on its feet.

Financial Restructuring:
  • The entities & persons who are owed funds by USL can convert them to equity even though the real value will be written-down.
  • The government (KRA+Treasury) would allow these write-downs as tax write-offs.
  • The uncollected VAT would be refunded asap by the KRA to the suppliers thus ensuring the suppliers don't face cashflow problems thus pushing them into bankruptcy as well
  • Existing shareholders would lose value since the additional shares would considerably dilute their holdings
  • Anyone willing to lend to USL should be allowed to do so as long as they are aware of the risks
Strategic Partner/Divestiture:
  • Start a search for a strategic partner who buys out existing shareholders OR
  • Find a strategic partner who will inject cash OR
  • Sell the chain/brand
  • Renegotiate leases & terms with the suppliers, landlords & creditors giving preference to those who helped USL survive through the tough times
  • Offer a Rights Issue while CLEARLY stating that there is a high probability of failure & with specific time frames as to the estimated period before profitability is achievable. No guarantees to be issued
  • Offer new shares restricted to the "sophisticated" investors e.g. pension funds, wealthy individuals, etc who are able to bear the risk of USL failing again

Thursday, June 01, 2006

Uchumi Supermarkets Limited in Receivership

An employee foreshadows the fate of Uchumi?
Letter to the editor of Kenya Times 24 July 2004

Uchumi Supermarkets has had turbulent years but here is some recent information (recent to older news):

Albert Ruturi was appointed chairman snubbing naushad merali of Sameer Group. Akif Butt (SG's FD) resigns his seat on USL's board & SG dumps its stake in USL pushing the prices to a low of 12/- (post Rights Issue).

Talk on the street (aka rumours) was that the government through KWAL refused to sell its stake to Sameer Group thus thwarting SG's plans to be the anchor shareholder.

Sameer Group had purchased a 10% stake in USL (early 2006) hoping to eventually buy out 25% & take control of the chain. ICDCIC (the listed entity controlled by chris kirubi) sold its stake to Sameer Group through the NSE board. The price rises to a post-Rights high of 22/-

USL had a successful Rights Issue in 2005 where they raised almost KShs 1.2 Billion.

USL appoint new MD, John Mastersen-Smith, formerly of Spar (SA).

Thairu is fired & replaced by an acting MD, Kipn'getich Bett.

Vendors stop supplying USL as it faces a cash crunch. Loss of retail traffic as shelves remain empty.

USL burns through the accumulated cash that Suresh Shah had carefully built up on an ill-conceived expansion plan that used short-term funds to fund long-term expansion. Various suspect leases for new premises were entered into that were done with "related" parties. Haco Indutries (kirubi-controlled) becomes a major USL supplier.

East African article about a "lost Uchumi"

Titus Mugo is fired in Nov 2000 & replaced by Kennedy Thairu (a kirubi appointee) as MD in 2001. Article justifying Shah's & Mugo's ouster from Market (Un)Intelligence.

chris kirubi takes effective control of USL through shareholdings held by himself, ICDCIC (kirubi-controlled) & other kirubi-controlled firms.

kirubi - supplier, vendor & buyer - did he eat his cake & have it too?

Titus Mugo (long serving deputy MD under Suresh Shah) becomes MD upon SS's "retirement".

Interview/Article in East African Dec 4 2000

Suresh Shah retires/resigns as MD of Uchumi in 1999 after an extremely successful run from its loss-making days as a government owned institution (through shares owned by ICDC, ICDCIC & KWAL) to its IPO & subsequent success. It has a 14 year run of making profits under Shah. Rumours have it that he was forced to resign to enable "politically correct" individuals control the cash-rich (over KShs 500 Million) & cash-generating behemoth. These "pc" individuals entities would also then become suppliers to Uchumi.

Suresh Shah's interview with Nation on his pending "retirement".

USL issues a bonus of 1:2 i.e. 1 share for every 2 held. Price hits a high of 60/-.

Kenya enters into an inflationary period & Uchumi's cash hoard increases Uchumi's interest income substantially. Uchumi undertakes a careful expansion concentrating on Nairobi. The logic as explained by the MD was expansion undertaken with a view to "logistical distribution" i.e. Can enough goods be supplied to new stores from a central point at a reasonable cost. This was pre-barcodes & ERPs thus control of shrinkage was paramount in the retail business.

USL goes public through an IPO at 16.50 which was oversubscribed. Suresh Shah remains MD & price goes up to 20/-.

Suresh Shah becomes General Manager then Managing Director of Uchumi (1980 to 1999).

Uchumi Supermarkets is established in 1975.