KENYA – Kenyan retailer, Uchumi Supermarkets has been granted leeway by commercial banks who have agreed in principle to write off and restructure a debt settlement plan of outstanding credit owed by the Supermarket chain operator.

The write off follows the lenders acceptance of the retailer’s company voluntary agreement (CVA), its recovery plan to return to normalcy and relieve pressure off Uchumi’s hard pressing repayment obligations.

Uchumi was owing its creditors and suppliers over Sh3.9 billion (US$36 million) which is way above its assets Sh1.4billion (US$13m) as at June 30 2018, meaning even if its assets are all sold, it will not be able to clear its debt.

Kenya Commercial Bank (KCB) which was first to take up the CVA has agreed to a waiver off all accrued interests and penalties an equivalent Ksh.365.6 million (US$3.57m) while offering a 44 percent discount on its lease facility to represent a write off of a further Ksh.180.9 million (US$1.76m), reports Citizen news.

KCB expects to receive a final and full payment of the outstanding sum of Ksh.900 million (US$8.79m) on a quarterly basis to June 2024.

Meanwhile, Cooperative bank of Kenya has offered a 40 percent waiver of its total outstanding loan facility including both principal and accrued interest to represent a Ksh.109.1 million (US$1.06m) write off.

The bank however expects an immediate settlement of 10 percent of the outstanding Ksh.163.6 million (US$1.59m) after write-off, on or before the 28 of February 2020 as per a sworn affidavit filed in High Court’s commercial and tax division and seen by Citizen Digital.

After the High Court of Kenya, Commercial and Tax Division extended the period of Uchumi to amend its CVA in late September, it reached a further settlement deal with the Industrial and Commercial Development Corporation (ICDC).

According to court filings, the corporation has agreed to restructure repayments for its outstanding Ksh.112.8 million (US$1.10m) loan across seven years while opting in on a standstill agreement for the settlement of the principal Ksh.84.8 million (US$0.82m).

Further, the ICDC has tasked Uchumi with the provisioning of regular reviews to its cash-flow projection based on the retailer’s ongoing performance.

On the other hand, United Bank of Africa (UBA) has objected twice to the retailer’s debt restructuring proposal.

In its counter proposal, UBA has demanded for the upfront settlement of 70 percent of its outstanding loan totaling Ksh.180.5 million (US$1.76m) including accrued interest and the clear demonstration of the source of the pre-payment before the approval of the CVA.

Further, UBA says it will restructure repayments to the remaining 30 percent balance to a shortened period of three years even as the lender agrees to the suspension of the accumulated of interest from the date of the CVA’s signing.

Nevertheless, UBA wants the preserve of the unconditional right to sell off Uchumi’s property upon default in spite of this preserve falling to the ICDC.

As part of the CVA the retailer will leverage on technology, pursue beneficial partnerships and review its business model while managing its costs.

The struggling retailer will also begin franchising select stores and embark on a digital transition to move into a more convenient store model.

 “At the present moment, the business environment is harsh and challenges meeting all obligations. However, acceptance of the CVA will eventually enable the company to get back to normalcy,” said Uchumi Chief Executive Officer Mohamed Mohamed.

Company internal projections estimates Uchumi to break back into profitability of Sh61.5 million (US$592,377) as at June 30,2020.

Available cash at the end of each period is projected to hit a high of Ksh.76.5 million (US$0.74m) by June 2022 to retain the targeted debt service coverage ratio (DSCR) of 1.2.

In the event of the CVA’s failure, creditors which have the limited options of a debt to equity conversion or the last-resort option of liquidating the company.

Both options hold integral risks including the dilution of current shareholders and the shallow recovery by unsecured creditors including suppliers who come second to banks and government in the recovery pecking order.