East Africa’s biggest retailer has sold a 25% stake to an international investor

Take a bite of Nakumatt.
Take a bite of Nakumatt.
Image: Reuters/Thomas Mukoya
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Cash-strapped Kenyan retailer, Nakumatt is set to receive $75 million from a foreign investor to service its mounting costly debt and to settle suppliers, which have weighed down its operations.

The unnamed investor would hold a quarter of the company if the deal closes, valuing the overall business at $310 million. The cash injection will off-set part of the $180 million in costly short-term debt the retailer owes to local banks.

Nakumatt also announced a corporate restructuring program which will see former Tesco executive Andrew Dixon join its ranks as chief marketing officer. Dixon is a British retail veteran of 30 years experience who developed some of Tesco’s leading initiatives over the last 20 years. These include the Tesco Health & Beauty in-store concept, Tesco’s core private label brands, the Tesco Express convenience store format and also managed the Tesco Clubcard, the largest loyalty program in Europe.

Nakumatt managing director Atul Shah said the investment deal was at the penultimate stage and was only waiting for the $75 million to hit its account. The family-owned retailer, the largest in East Africa with 63 outlets in Kenya, Rwanda, Uganda and Tanzania, has struggled to pay suppliers, with its Uganda outlets experiencing stock-outs in recent months.

Despite Nakumatt’s difficulties, there is still much interest in retailers in in the region given the growing numbers of middle class consumers.

The supermarket’s rapid expansion has put it at pole position in East Africa’s retail sector. The region has attracted considerable interest from regional and international players even as a number of local players remain saddled with debt.

Botswana-based Choppies acquired a 75% stake in Ukwala, a family-owned Kenyan retailer, which reported a $2.7 million loss in the year to June 2016. French-multinational, Carrefour and South Africa’s Game, a brand of MassMart have also opened outlets in the country. Carrefour is on course to open a second store at Two Rivers shopping mall in Nairobi.

Financial stress

Shah acknowledged that the retailer was under “financial stress” and despite the share sale, it was still “out looking for funds” and restructuring the existing debt to allow for a manageable repayment process going forward.

On Dec. 15, South African ratings agency Global Credit Ratings (GCR) downgraded the retailer from BB stable outlook to BB- due to a “notable deterioration” of the retailer’s credit risk profile. The supermarket’s debt load has grown four-fold from $47 million in 2012 to $180 million by the end of 2016 as it turned to costly short-term debt to fund expansion across East Africa and meet working capital needs.

Over the past five years, the retailer’s revenues have been growing at a cumulative annual rate of 14% to reach $516 million in 2015. But, profits have been deeply eroded by rising interest charges on the snowballing debt. The retailer intends to restructure the remaining debts to longer term maturities, but will still depend on loans to service supplies that are long-overdue.