The High Court Commercial and Tax Division has granted Uchumi an additional 30 days to engage banks over the settlement of outstanding loans advanced to the cash-strapped retailer.
The directive by the court dated September 27 sits as a pre-cursor to the full acceptance of the supermarket’s Company Voluntary Agreement (CVA) following its partial admittance in May this year.
Uchumi made its receipt of the CVA in March after requisite approval by the Capital Markets Authority (CMA) as it sought a new strategy towards business continuity and overall debt restructuring.
The supermarket has welcomed the window by High Court as it ramps up its engagement with creditors and following the partial acceptance of its voluntary plan by trade creditors.
“It’s a step in the right direction as the extension gives us a bit of time to better execute the recovery strategy,” Uchumi Chief Executive Officer Mohamed Mohamed told Trade Bell on Saturday.
“The CVA will change Uchumi to a large extent especially from a balance sheet restructuring point of view”
Uchumi’s board of management had elected to take up the CVA at the start of the year as the company bled from continued litigation by creditors.
The supermarket, which saw its suppliers agree to the terms of its voluntary agreement on May 13, will now seek to have its senior lenders subscribe to the same terms.
The CVA details contained in the company’s debt restructuring proposal and creditors plan, under code name ‘Project Mara’ asks banks to take a 50 percent trim on their outstanding credit at Uchumi while the supermarket structures the repayment of the outstanding sum over the course of the next five years.
Among the lenders is the KCB Group, Cooperative Bank, the government and the Industrial & Commercial Development Corporation (ICDC)
In May, Uchumi’s trade creditors who majorly entail suppliers agreed to take a 30 percent haircut for goods supplied, an equivalent Ksh.1.2 billion, while discounting a further 40 percent of the outstanding payments into non-cumulative, convertible preferential shares at the firm.
Going forward, Uchumi is backing its revamp of strategy to deliver value for creditors as the firm holds out for the recovery of its core business.
Uchumi has since adopted a franchise model which is set to be adopted in six of its remaining 10 outlets with a view to lower operational costs and generate alternative revenue sources.
According to the company’s own revenue projections, Uchumi is set to break even on the debt restructuring program in June 2024 with each outlet generating an average 18 percent gross profit per annum.
Income generated from the franchise model is meanwhile estimated at Ksh.310 million per year with branch income expected to come in at an improved Ksh.3.7 billion every 12 months.
Uchumi hopes to immediately raise an estimated Ksh.1.7 billion from the sale of a 20-acre parcel in Kasarani allowing the supermarket to offset a partial Ksh.1.4 billion payment to creditors.
The creditors cooled down on their wind up hard stance as the disposal of Uchumi’s current assets would only result in the realization of an estimated 6.8 percent of the balance sheet.
Uchumi’s liabilities including equity outstripped assets by Ksh.14.8 billion as per the company’s last financial disclosures in June 2018 to mirror the retailer’s closing walls.
Uchumi was first incorporated as a full State entity in December of 1975. The government would however divest 40 percent of its stake through a 1992 Initial Public Offer (IPO) before giving up a further 8.4 percent stake between 1995 and 1996.
The retailer’s troubles first came into the lime light in 2006 when the company was placed under receivership. Subsequently, Uchumi has been under the cosh including most recently, the pile up of litigation suits against the firm in 2016.