Uchumi creditors have voted to spare the lender from imminent dissolution by backing the firm’s proposed company voluntary agreement (CVA).
Source: Citizen Digital
The positive vote will see the creditors agree in part to debt forgiveness and sees banks write off half of their accruing arrears while suppliers are set to discount 30 percent of their pending repayments.
Uchumi Chief Executive Officer Mohamed Mohamed has termed the outcome of the vote carried out Monday as a signal of stakeholder confidence in the retailer’s planned turnaround.
“This is a turning point for us. It shows the level of confidence in both secured and unsecured creditors, he said.
On his part, Uchumi Chairman John Karani expects the nod by creditors to pave way to an even tougher challenge of steering the retailer back into profitability.
“When people give you a vote of confidence, I always believe it’s a greater challenge than an otherwise decision. The honours are now upon management to translate that trust. The real work begins now” he said.
An estimated 74 percent of creditors passed the company’s CVA which required a simple majority for adoption to represent parties with arrears totalling to Ksh.3.5 billion.
Monday’s vote was forced upon by the High Court as commercial banks and government sat out of the initial creditors vote in May 2019.
While the government issued a letter of support to the process, not all commercial banks have been party to the deal with a single lender voting against the CVA.
Previously KCB, Cooperative Bank and Industrial and Commercial Development Cooperation (ICDC) had reached differentiated deals under the CVA plan with KCB and Co-op writing off a combined Ksh.656 million in Uchumi’s debt.
The United Bank of Africa (UBA) has however remained unmoved as it demands immediate compensation on balances due.
Uchumi is backing its survival on the freeing up of liquidity through partial debt forgiveness and the immediate disposal of company landholding in Kasarani which presently carry a market valuation of Ksh.2.8 billion.
Balances brought forward are meanwhile set to be footed over the medium term with the retailer undertaking a review of its business every six to 12 months.
The retailer business recovery strategy has meanwhile been pinned to cost optimization efforts with the implementation of a new payment and supply chain system.
The vote against liquidation by the retailer’s unsecured and trade creditors serves to preserve value for the stakeholders who come behind commercial banks in a case of the company dissolution.
Uchumi’s liabilities stood in excess of Ksh.7.7 billion as per the firm’s unaudited 2018 trading results against Ksh.731 million in assets available to preferential creditors.
As such only 6.8 per cent of the balance sheet would be recoverable to unsecured creditors to turn the party away from a vote in favour of liquidation.
Mazars Kenya Managing Partner Owen Koimburi is expected to lead the implementation of the CVA upon its successful filing in the High Court