Friday, June 16, 2006

Uchumi Supermarkets Limited (under Chapter 11 Restructuring)
Kenyan Company Laws (a throwback to colonial days) are antiquated & do not allow for an American style Chapter 11 bankruptcy/restructuring process therefore this is simply wishful thinking on my part.

Uchumi Supermarkets Limited (USL) enters into the Ch.11 bankruptcy overseen by a court to keep off unsavoury elements but being Kenya the judge could be just as unsavoury as the crooks! In addition, the judge/courts should be advised by businessmen/experts as to the suitability of any actions.

Anyway, the court initially drives the process with assistance from the current management & major creditors. The judge appoints a "team" to look into each party's claim including secured & unsecured creditors. Precedence is given to secured & larger creditors but the smaller unsecured cerditors are also given a voice. Each creditor can't have a representative but they can collectively choose someone to represent them.

Essentially a new Board of Directors is appointed with the directors being appointed by the judge though nominated as mentioned above. A CEO is chosen to head the management team.

Operational Stability - An agreement is reached as follows:
  • Mastersen-Smith is retained as CEO since he is most familiar with the firm & its problems. If need be he can be replaced later on.
  • Appoint new directors with retail experience e.g. a past CEO like Suresh Shah would be very useful
  • The stores remain open & employees are retained though there may be redundancies if needed to preserve cash
  • The banks agree not to foreclose on the properties. Suspend Interest
  • Landlords agree not to evict USL. Rent abatement for 6 months
  • Suppliers agree to continue supplying USL with generous credit terms in exchange for constant payments
  • Suppliers who continue supplying USL get a bigger say in the running of the "new" USL
  • Government (KRA & Treasury) agree to suspend collection of past due funds incl VAT, PAYE, etc with an eventual view to write these off. This is similar to a tax amnesty.
The above efforts will ensure USL has cashflow thus it can get back on its feet.

Financial Restructuring:
  • The entities & persons who are owed funds by USL can convert them to equity even though the real value will be written-down.
  • The government (KRA+Treasury) would allow these write-downs as tax write-offs.
  • The uncollected VAT would be refunded asap by the KRA to the suppliers thus ensuring the suppliers don't face cashflow problems thus pushing them into bankruptcy as well
  • Existing shareholders would lose value since the additional shares would considerably dilute their holdings
  • Anyone willing to lend to USL should be allowed to do so as long as they are aware of the risks
Strategic Partner/Divestiture:
  • Start a search for a strategic partner who buys out existing shareholders OR
  • Find a strategic partner who will inject cash OR
  • Sell the chain/brand
  • Renegotiate leases & terms with the suppliers, landlords & creditors giving preference to those who helped USL survive through the tough times
  • Offer a Rights Issue while CLEARLY stating that there is a high probability of failure & with specific time frames as to the estimated period before profitability is achievable. No guarantees to be issued
  • Offer new shares restricted to the "sophisticated" investors e.g. pension funds, wealthy individuals, etc who are able to bear the risk of USL failing again

2 comments:

bankelele said...

Banks have been through receiverships and a negotiated speedy resolution for Uchumi from a judge is unlikley. Also KCB MD said the government is working on something for Uchumi, which may complicate matters.

My way out is for a big-bucks supermarket (strategic partner) to come in and buy Uchumi, settling with the creditors for % of their claims and using KCB & other banks for finance.

Anonymous said...

I just commented on this very issue over at Bankelele's about two weeks ago.