Uchumi’s agony as High Court sets repeat creditors vote.
Uchumi’s recovery plan is back to square one with the High Court giving directions on the holding of a second vote on the company’s voluntary agreement (CVA).
As such the troubled retailer is expected to stage a second creditors meeting on March 2 and an ultimate vote which will in principal determine the continuity of the 45-year-old retailer.
Dubbed Project Mara Uchumi’s CVA will require the blessing of the majority of shareholders and creditors respectively will a denial vote likely setting the path to liquidation.
Uchumi has previously garnered the support of suppliers and part of owned banks who agreed to different terms on their debt restructuring.
In May last year, Uchumi’s suppliers agreed to forfeit 30 percent of their arrears while further converting 40 percent of the balance to preferential shares.
Further, the suppliers elected to receive payments for the remnant 30 percent over a five-year stretch and elected to resume supplies to the retailer.
Subsequently, three financial institutions in KCB Group, Cooperative Bank and the Industrial and Commercial Development Corporation (ICDC) agreed to a proposed 50 percent haircut on arrears with Co-op and KCB writing off a combined Ksh.656 million in Uchumi’s debt.
However, the approval of the CVA hangs in the balance as the retailer struggles to on board other creditors including the Government of Kenya.
For instance, UBA bank has threatened to throw Uchumi’s plan out of the window by an immediate 70 percent upfront payment on its outstanding loan accruing to Ksh.180.5 million while suggesting the shortening of the balance’s repayment in three years.
As such, the acceptance of the CVA will require the convincing of creditors for a second time with some parties having possibly shifted positions since the last creditors meeting.
According to Uchumi, the CVA remains as the only viable option to recapture value for all involved parties as liquidation offers up a grave deal for unsecured creditors.
“My target all along has been to safeguard all creditor parties. I will do my best to see this through. If liquidation goes through, it will only be to the benefit of one party,” Uchumi’s Chief Executive Officer Mohamed Mohamed told Citizen Digital in an interview on February 21.
“We have been engaging the creditors on an individual basis for several occasions. For some parties, we are yet to come up with anything conclusive”.
Uchumi has backed its self-proposed debt restructuring program to ease up the firm’s financial constraints with the retailer’s plan projecting the business to break back into a profit by June 2024.
The retailer has put its hope on the immediate disposal of land worth Ksh.1.7 billion Kasarani land while betting on franchising to grow future incomes at an estimated Ksh.310 million each year.
In summary, Uchumi’s turnaround strategy is premised on generating cash from the sale of its non-core assets to create liquidity for the settlement of creditors. Further, the retailer hopes to optimize its performance through the running of new systems to its business model.
According to documents accessed by Citizen Digital, Uchumi’s debt stands at over Ksh.7 billion with the company’s trade creditors representing a majority 69 percent proportion of the unpaid dues.
Previously, suppliers have hinted at backing the proposal all the way through while cognizant of the stakes of losing everything in a liquidation scenario.
“Liquidation is not the best option. Suppliers can now expect some down payment on existing debt. We will now work together to see a resumption of business,” said the Chairman to Uchumi suppliers Kimani Rugendo on May 13.
Uchumi was first incorporated as full State entity in December 1975. The government would however divest a 40 percent stake in a 1992 Initial Public Offer (IPO) before further giving up an 8.4 percent stake between 1995 and 1996.
The retailer’s troubles first came to light in 2006 when the then trading firm was placed under receivership. Subsequently, Uchumi has remained the subject of mounting liquidation suits.
Uchumi will go down the Nakumatt’s wind up route should creditors opt for liquidation.Some creditors are believed to favour liquidation as Uchumi holds more assets for disposal in comparison to Nakumatt.
Liquidation will however favour secured creditors only including banks as they get the first priority to payments.