Uchumi Seeks Private Equity Rescue in Fight for Survival

(Bloomberg) -- Uchumi Supermarkets Plc started talks with a private-equity fund and other investors over a potential capital injection that could help the Kenyan supermarket chain survive a cash crunch.

“We’re following different channels of financing,” acting Chief Executive Mohamed Mohamed said in an interview in the capital, Nairobi, declining to name potential suitors. “Where Uchumi is right now, it needs some cash almost immediately. We are looking for a financial investor.”

The 42-year-old grocer and rival Nakumatt Holdings Ltd. have had their market invaded by international retailers such as Carrefour SA of France, Shoprite Holdings Ltd. of South Africa and Botswana-based Choppies Enterprises Ltd. as they try recover from corporate governance challenges. Uchumi has closed down half of its stores in a shake up that started three years ago and also saw the departure of some of the company’s top executives including its CEO and chief financial officer.

Uchumi needs to raise as much as 7 billion shillings ($69.3 million) this year to hold off the competition, of which at least 4 billion shillings is needed soon, Mohamed said. It also wants to use some of the cash to roll out e-commerce, franchises and convenience stores, rather than only relying on hypermarkets, the acting CEO said.

Assets Sale

The loss-making chain store expects to reach a decision this week on whether it’ll go ahead with the sale of a 20-acre (8 hectare) piece of land valued at 3 billion shillings, he said. The board will consider options of whether to sell parcels of the plot or dispose it off entirely.

The company will get a 10 percent deposit of the price immediately on finalizing a sale agreement, which will give “comfort to some creditors,” Mohamed said. “We’re reviewing the full impact of those offers as well as the best ways of optimizing the land,” he said.

Uchumi has sold assets and shut a 49,200 square-foot space in Nairobi to reduce costs. Two stores it recently exited accounted for 42 percent of rental expenses of 55 million shillings, Mohamed said. The company is re-negotiating leases, reducing floor space, or subletting to specialty stores, he said.

“We are looking at other loss-making areas and getting rid of them to stop the bleeding,” Mohamed said. “Looking at our financial situation, it would be prudent to re-look at where we want to play, which line of business we want to pursue. E-commerce is an important aspect of where we want to play.”

Uchumi has struggled since it emerged from bankruptcy in March 2010. It went into receivership five years earlier with debts of 2.2 billion shillings, which were either cleared or converted into shares. Its shares have nearly halved this year, dropping 48 percent to 2.40 shillings in Nairobi.

To contact the reporter on this story: Bella Genga in Nairobi at bgenga2@bloomberg.net.

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura, Vernon Wessels

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