KCB, Co-op Bank write off Ksh.656 million Uchumi debt
KCB and Cooperative bank have agreed in principle to write off a combined Ksh.655.5 million in outstanding credit to the debt-strapped Uchumi Supermarkets.
The write off follows the lenders acceptance of the retailer’s company voluntary agreement (CVA) which seeks to restructure the company’s debt into the medium term in a means to relieve pressure off Uchumi’s hard pressing repayment obligations.
On its part, KCB which was first to take up the CVA has agreed to a waiver off all accrued interests and penalties an equivalent Ksh.365.6 million while offering a 44 percent discount on its lease facility to represent a write off of a further Ksh.180.9 million.
KCB which is Uchumi’s largest creditor is expected to receive a final and full payment of the outstanding sum of Ksh.900 million on a quarterly basis to June 2024.
Meanwhile, Cooperative bank has offered a 40 percent waiver of its total outstanding loan facility including both principal and accrued interest to represent a Ksh.109.1 million write off.
The bank however expects an immediate settlement of 10 percent of the outstanding Ksh.163.6 million after write-off, on or before the 28 of February 2020 as per a sworn affidavit filed in High Court’s commercial and tax division and seen by Citizen Digital.
Uchumi which was granted a further 30-days to engage its remaining secured creditors on November 7 including the United Bank of Africa (UBA) and the government has reached a further settlement deal with the Industrial and Commercial Development Corporation (ICDC).
According to court filings, the corporation has agreed to restructure repayments for its outstanding Ksh.112.8 million loan across seven years while opting in on a standstill agreement for the settlement of the principal Ksh.84.8 million.
Further, the ICDC has tasked Uchumi with the provisioning of regular reviews to its cash-flow projection based on the retailer’s ongoing performance.
Nevertheless, the legality of Uchumi’s CVA remains hinged on drawing support from both the government and UBA.
According to the retailer, the company’s engagement with government over the capture of a new five year moratorium on the settlement of Ksh.1.2 billion remains on course and only pends the clearance of internal processes.
UBA is however Uchumi’s biggest pain having objected twice to the retailers debt restructuring proposal.
In its counter proposal, UBA has demanded for the upfront settlement of 70 percent of its outstanding loan totaling Ksh.180.5 million including accrued interest and the clear demonstration of the source of the pre-payment before the approval of the CVA.
Further, UBA says it will restructure repayments to the remaining 30 percent balance to a shortened period of three years even as the lender agrees to the suspension of the accumulated of interest from the date of the CVA’s signing.
Nevertheless, UBA wants the preserve of the unconditional right to sell off Uchumi’s property upon default in spite of this preserve falling to the ICDC.
In spite of the hard-line terms and an ongoing tough business environment, the retailer remains optimistic of sealing the restructuring deal to reset the company back on the profitability curve.
“At the present moment, the business environment is harsh and challenges meeting all obligations. However, acceptance of the CVA will eventually enable the company to get back to normalcy,” Uchumi Chief Executive Officer Mohamed Mohamed told Citizen Digital.
Uchumi has pegged its recovery of business on optimization including the implementation of a new payment and supply chain system and the adoption of the franchise model to shed off operational costs.
Further, the retailer is seeking for a strategic investor to steady the ship with the company currently remaining in the red.
According to Uchumi’s unaudited financial results at June 30, the retailer narrowed its net loss to Ksh.516 million from Ksh.1.7 billion last year on the back on increased revenues and narrowed administration costs.
Company internal projections estimates Uchumi to break back into profitability as early as June next year improving the retailer’s liquidity position to meet the debt service obligations.
Available cash at the end of each period is projected to hit a high of Ksh.76.5 million by June 2022 to retain the targeted debt service coverage ratio (DSCR) of 1.2.
In the event of the CVA’s failure, creditors which have the limited options of a debt to equity conversion or the last-resort option of liquidating the company.
Both options hold integral risks including the dilution of current shareholders and the shallow recovery by unsecured creditors including suppliers who come second to banks and government in the recovery pecking order.