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


bankelele said...

Banks have been through receiverships and a negotiated speedy resolution for Uchumi from a judge is unlikley. Also KCB MD said the government is working on something for Uchumi, which may complicate matters.

My way out is for a big-bucks supermarket (strategic partner) to come in and buy Uchumi, settling with the creditors for % of their claims and using KCB & other banks for finance.

Anonymous said...

I just commented on this very issue over at Bankelele's about two weeks ago.