Thursday, June 14, 2007

Uchumi shareholder bond

Uchumi Supermarkets (in receivership) has now formally asked shareholders to subscribe to a bond to raise Kshs 650 million ($9.85 million). These bondholders will rank alongside the government who lent Kshs. 675 million to Uchumi last year, but subordinate to (paid after) to bank ‘s debt

The bond offers 10% per annum, (which is more than any bank savings account in the country) and is allocated at a rate of 5 shillings for each share held (minimum subscription is 5,000 shillings, in 1,000 increments thereafter) D/L is 31/7

While the solicitation for the bond mentions the company’s’ very successful and impressive turnaround in receivership, there are no numbers to back this up.

I remain a faithful shopper (for groceries & other household items) at Uchumi, but as a shareholder, it is prudent to ask some questions before considering reinvesting:

- What is the performance of the company in receivership? Is it profitable on a monthly basis? Is it generating or consuming cash? Putting together a bond prospectus is expensive and a receiver manager is under no obligation to disclose financial performance to shareholders – but Uchumi was is a public company and disclosing such information to potential investors and the public should not coats more than 100,000 by way of a newspaper advertisement
- What is the level of bank debt and has it gone down? How much is still owed to the banks i.e. KCB and PTA? This is the 4th or 5th time the company is raising money in 3 years (after the 1.2 billion rights issue, 300 million suppliers assistance, 657 million from the government, 300 million attempted from shareholders
- If company is doing so well (media have reported 50% improvement over Uchumi’s best ever recent year), what was so wrong that the company collapsed? I have written before on how receiver managers can sometimes be better managers than the owners of a company and would like to see if this is a textbook example.

8 comments:

Jakarumba said...

Banks, let sus assume that the past two attempts including this third one to raise more cahs are successful. My question then is, can Uhumi beat its greatest rival and threat-Nakumatt to regain its former market position?
I was at Nakumatt Westgate yesterday, the store is in operation though some interior construction work is yet to be completed. That (Westgate Assault) together with the idea of a 24hr Nakumatt stores will make Uchumi's survival a nightmare.

Mimmz said...

I'd love the answers to the questions you posed as well. About Nakumatt, what happened to their tax evasion law suit? Or wasn't there one ever, really, just alleged claims that weren't followed up?

@Jakarumba: Why wouldn't Uchumi compete by going either 24 hour or 20 hour, whatever is more profitable in some of their stores? As long as they are not stagnating or sitting in a status quo, they are in a position to compete, I think.

bankelele said...

Jakarumba: Not just Nakumatt (which has a different target customer group), but also Tuskermatt aka Tuskys (who have about 5 stores in the bus/matatu terminus areas in the Naiorbi CBD). Uchumi is doing ok, but we need to see some numbers

Mimmz: Makumatt enaged in some hard PR, CSR & advertising work, made peace with KRA and KBS to become a model company.
- 24 hour stores not really a Kenyan priority with the night time insecurity (who feels safe shopping at 3am?)

Anonymous said...

What is the Nakumatt target group as opposed to Uchumi? please...

Mashatall said...

Banks seems like you are also experiencing a downturn in readership just like NSE is in volumes traded.The few of us who frquent your blog are the faithful diehards, who were not chasing the latest stocks or rumor !! Anyways i still contedn that Uchumi is a bottomless pit, that will continue swallowing investors money, and ai still wonder why people are still holding on hoping it makes it out of receivership. The current managers have not come up with a good trunaround strategy, to neutralise the nakumatts and tusky's, who are daily innovating and coming up with new ways of revenue generation. 24 hours is doable to me Banks, Kenya is at a point where retailing is becoming big business with a lot of disposable income in peoples pockets. The only thing lacking is the segmentation that you wopuld normally see out in the west, where you have the best buys selling electronics,homedepot selling hardware and office depot selling office stuff and furniture.Nakumatt tries to do it all which to me long term will be their undoing, i cant wait for some other stores to come up and target certain retail sectors, which will render a trip to nakumatt for furniture or electronics worthless.Lets hope Uchumi comes up with good strategy, otherwise you will all end up chasing bad money + bad money=bottomless pit, get out noe if you can and do not pump in any more money.

bankelele said...

Mashatall: welcome back
I am in a dilemna since readership is at its highest ever, yet comments are way, way down - and I need comments/feedback to engage & improve the quality of content here. [you used to be one with great insightful comments sho's gone silent! - and where's Coldtusker?]

On NSE, I have made very few trades this year, maybe a reflection of the expensive shares and not seeing any value. I just added some Scangroup, am waiting to see Kenya Re and will pick up soem KQ if they drop further. Uchumi need to tell us where the 2 billion plus since receivership has gone, and how it has improved before I consider any more cash investment (besides shopping there)

Dropmyload said...

I am an Uchumi shareholder ( pls don't laugh or cry), and honestly at this stage I see no reason to keep pumping cash back into them.

My wife does our domestic shopping, and every month she presents me with a Nakumatt bill. I asked her to shop in Uchumi so I can have some hope of recovery, but she claims that Uchumi just does not work for the following reasons:

- Prices are higher than Nakumatt
- Most goods are still not available on the shelves
- What is available is irrelevant, for example she needed light bulbs, and found Uchumi Sarit stocked with only 25 watt bulbs, no other....very strange indeed.

It does not make sense that a trading company that sells purely on cash basis, and purchases on terms is having such serious cashflow problems. Unless offcourse, sales are not what they are claiming! Or overheads are still ridiculuosly high?

I think it is high time we all accepted that Uchumi will probably never re-list, and will carry on looking for more and more funding, until we see a final collapse.

bankelele said...

Dropmyload: Am also a (late) shareholder and frequent shopper at Uchumi who wants to know how the company has performed with the cash they have managed to raise. I don't see their prices as bsine higher, but they do have less variety than Nakumatt. They get good marks for vegetables and their bakery. Not just the reciver manager, but the CMA, ICPAK, and auditors have all promised reports on what went wrong at the company. Media have reported on the rapid expansion, high (slow moving) inventory and staff pilferage (which even Walmart is feeling)

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