KENYA – The resignation of Uchumi Supermarkets’ chief executive Julius Kipng’etich has thrown the retailer’s recovery plans into limbo and compromised its efforts of attracting new funding to pay its outstanding debts and restock its outlets.
This comes even as the government said it had released Ksh700 million ($7 million) to the company for restocking so that it can take advantage of the booming business expected in the end of year festive season.
The money is part of the Ksh1.8 billion ($18 million) loan that the government had promised earlier this year.
This brings the government’s total disbursement to Uchumi to Ksh1.2 billion ($1.2 million). Some Ksh500 million ($5 million) had been released in January.
The government declined to release the full amount promised after Uchumi failed to meet certain conditions of the bailout.
The conditions include an audit of how the management was going to handle the cash and a full and convincing explanation of how the money would be used to revive the company compared with similar past funding from the state that did not improve cash flows as expected.
Kenya’s Cabinet Secretary for Industry, Trade and Co-operatives Adan Mohamed told The EastAfrican that the remaining Ksh600 million ($6 million) will be released by the government depending on the success of the restructuring plan.
“We will be monitoring and assessing how things go and how restructuring proceeds before we release the balance,” said Mr Mohamed.
He further said that Uchumi’s board has the responsibility to hire a new chief executive as soon as possible to replace Dr Kipng’etich.
“People can move in and out of a company but the board has the responsibility to bring in a new person as soon as possible. There is no vacuum. The board is dealing with the situation,” said Mr Mohamed.
However, the future of the the former retailing giant still hangs by a thread as outlets continue operating with empty shelves and workers endure several months of no pay.
“Kipng’etich’s exit is likely to be a blow to the implementation of the recovery plan. Whether the actual exit has an impact on the long-term fortunes of the company is debatable because the recovery plan has yet to fully achieve the objectives envisioned.
The company is still dealing with stock outs at its branches, customer apathy, negative cash flow and negative retained earnings two years after Dr Kipng’etich’s appointment,” said Victor Cheruiyot, analyst at AIB Capital Ltd.
Uchumi stock on the Nairobi Securities Exchange fell 9.76 per cent to Ksh3.7 ($0.03) per share on Thursday from Ksh4.1 ($0.04) per share on Wednesday after news of the CEO’s resignation filtered through the market.
Mr Kipng’etich’s sudden exit from Uchumi comes at a time when Kenya and Tanzania had directed the firm’s management to carry out an audit of the $3.8 million debt owed to Tanzanian suppliers and come up with a workable repayment plan by December 31.
During a bilateral meeting between the two countries in September this year, Tanzania said Mr Kipng’etich had refused to co-operate and remained non-committal on the repayment of the debt despite several requests to meet the financial obligations.
Last year, Uganda also reported to the East African Community that Uchumi had closed down without paying 800 workers and suppliers and the government had therefore filed a case for insolvency.
Uchumi is looking for Ksh3.5 billion ($35 million) from a strategic investor to restock its supplies. The deal for the procurement of their investor was to be concluded in November.
The government has also been hesitant to release the full amount of the loan it had promised the retailer this year, arguing that additional disbursements depends on the audit of the firm’s spending plan.
“There is little information about the strategic investor in the public domain. With no concrete information, it is hard to predict the implication of Kipng’etich’s resignation.
That said, the exit of the CEO only a year after the exit of the chief operating officer will definitely complicate Uchumi’s precarious position in the negotiations with the said investor.
High turnover of key staff is likely to be interpreted as a vote of no-confidence by any potential investors,” said Mr Cheruiyot.
Uchumi pulled the plug on its regional operations in 2015 by closing down four and six outlets in Tanzania and Uganda respectively following prolonged periods of loss making.
The firm also shut down several branches in Kenya to prevent financial bleeding.
This reduced its losses for the financial year ended June 30 by 40 per cent to Ksh1.68 billion ($16.8 million) from Ksh2.84 billion ($28.4 million) in the previous year but turnover dropped 60 per cent due to closure of branches, to Ksh2.59 billion ($25.9 million) from Ksh6.42 billion ($64.2 million).
Uchumi’s majority shareholding is owned by Jamii Bora Bank with a 15.8 per cent stake, followed by the Kenya government with 14.6 per cent.
The East African