The fate of troubled retail chain Uchumi Supermarkets hangs in the balance after Kenya suspended the disbursement of a Ksh1.3 billion ($13 million) loan, pending the audit of its expenditure.
This comes as the retailer struggles to find a strategic investor to inject Ksh5 billion ($50 million) into the business.
“We were not to give money just like that,” said Principal Secretary in charge of Trade Dr Chris Kiptoo. “This is public money we must know how it is being used. Remember the Ksh1.8 billion ($18 million) is not a grant or a share injection. It is a loan.”
Uchumi chief executive Julius Kipng’etich said the firm is still in discussion with the government over the matter.
“We have only received Ksh500 million ($5 million) and we are still in discussion,” said Dr Kipng’etich.
The Nairobi Securities Exchange-listed retailer received the Ksh500 million ($5 million) from the exchequer in January, and the government maintains that additional disbursements depend on the review of the firm’s spending plan.
According to Uchumi, the additional $13 million was expected before the end of the current financial year. The turn of events has further crippled the company’s local operations and prolonged the financial pain of suppliers in Uganda and Tanzania.
Uchumi planned to use Ksh600 million ($6 million) of the loan to pay creditors in the two countries, where it closed shop in October 2015.
Last year, Uganda reported to the EAC member states that Uchumi had closed shop without paying 800 workers and suppliers and had, therefore, filed a case for insolvency in the Uganda Courts of Law.
Uchumi, which has about 1,300 workers, has not paid salaries for the month of May, attributing the delay to constrained cash flow.
Early this year, Dr Kipng’etich told The EastAfrican that major shareholders are not ready to inject more funds into the business as they are facing other pressing financial needs.
“We have the mandate of the shareholders to look for an investor but every time we evaluate the proposals, they don’t come to fruition. We have also been talking to our major shareholders, but they also have their own challenges,” he said.
Uchumi is majority-owned by Jamii Bora Bank with a 15.8 per cent shareholding, followed by the Kenyan government with 14.6 per cent.
Another retailer Nakumatt Supermarkets is also facing financial troubles and running out of supplies after a botched expansion spree driven by debt.
The company has already sent 100 employees on compulsory leave and closed down three unprofitable outlets in Uganda and Kenya. It has also not paid its 1,555 employees their May salary.
The company said more non-performing outlets will be closed as efforts to secure a strategic investor to take up 25 per cent of the shares are yet to yield fruit.
Nakumatt and Uchumi sank into huge debts amounting to Ksh15 billion ($150 million) and Ksh6.1 billion ($61 million) respectively, with unsecured creditors (suppliers) facing the problem of delayed payments.
In 2015, competition in Kenya’s retail sector heightened with the entry of South Africa’s Massmart Holdings, a subsidiary of the US-based Walmart.
It was followed by French retail giant Carrefour last year and Botswana-based food retailer Choppies, which acquired Ukwala Supermarkets.
Other major players in the market include Naivas and Tuskys, which shut down two branches in Nairobi.