East Africa’s largest retailer is in talks to sell a 25% stake to a private equity firm

Take a bite of Nakumatt.
Take a bite of Nakumatt.
Image: Reuters/Thomas Mukoya
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East Africa’s largest retailer, Nakumatt, will cede up to 25% of its shares to an international private equity investor to plug cash flow glitches that have plagued its operations, according to a person close to the company.

It comes after a surprise announcement by the Nairobi-based company that it had run into liquidity hiccups after photos of empty shelves at some of its Nakumatt outlets in Uganda circulated on social media. The retailer, which has 61 branches across East Africa, has remained tight lipped on the potential partner it will bring on board but indications are it will not be another supermarket chain but an international private equity financier.

Photos of empty shelves at its outlets in Kampala, Uganda’s capital, jolted the retailer to issue a statement saying its business was solid despite challenges triggered by a harsh operating environment. The empty shelves have been linked to contractual fall-out with suppliers in Uganda.

A number of the suppliers opted not to supply the retailer until issues around improving their margins and shortening of the credit period should be agreed on. It is understood that some suppliers demanded to be paid within 30 days or less, despite the supermarket’s credit period ranging from between 180 and 270 days. This had been increased from 90 days when the retailer began facing cash flow challenges.

The retailer has also been relying heavily on commercial debt, which stood at $150 million at the start of 2015 up from $42 million at the end of 2011. Should everything go according to plan, the deal will be sealed “in a few weeks”.

“With the ongoing financial re-engineering engagements focused on accessing a significant capital injection, we are confident that the overall debt will further reduce once the process is concluded,” the retailer said in a statement.

International strategic investors such as WalMart and Carrefour and private equity investors have been eyeing the East Africa’s rising middle class for some time as an opportunity with local retailers.

In recent years, East African markets have turned tumultuous for both indigenous and international retailers. Uchumi, a Nairobi Securities Exchange-listed retailer, exited Uganda and Tanzania last October after failing to break even five years after expanding in those markets. The subsidiaries were, in fact, draining the parent company in Kenya, which is laden with debt and facing challenges paying suppliers.

Shoprite, a South African retail giant, sold its Tanzania outlets in 2014 and those in Uganda in 2015 to Nakumatt, and exited the regional markets on the back of poor performance and growing competition. The supermarket had been operating in Uganda for 15 years and Tanzania for 13 years. But, it’s the struggles at Nakumatt, which has all along seemed sound, that will raise most concerns.

“The business doesn’t look good. Times are tough,” tweeted Victoria Odipo.

“We could also say that the shoppers are emptying the shelves faster than tbe supermarkets can stock them. Great economy,” one Jamie tweeted.

Botswana-based Choppies, which acquired a 75% stake in a family-owned Kenyan retailer, Ukwala reported a $2.7 million loss in the year to June 2016. Major supermarkets in Kenya are still family-owned but foreign operators such as Choppies, French-multinational, Carrefour and South Africa’s Game, a brand of MassMart have since opened outlets in the country.