Uchumi creditors on Monday handed a lifeline to troubled retailer Uchumi by voting to spare the cash strapped lender from dissolution throwing their weight behind the firm’s Company Voluntary Agreement (CVA).
This means that the creditors have agreed to take a haircut with banks agreeing to write off half of their accumulated arrears while suppliers will have to do with a 30% discount off their pending repayments.
Since the company’s financial troubles became public knowledge, the company has been battling its creditors in court who have been fighting to recoup as much of their money as they possibly can.
Chief Executive Mohamed Mohamed who has been the poster boy of the retailer’s run-ins with the creditors on Monday exuded confidence that there is finally light at the end of the tunnel.
“This is a turning point for us. It shows the level of confidence in both secured and unsecured creditors,” said Mr Mohamed.
Company Chairperson John Karani expects the creditors to approve the proposal imminently and free the retailer to kickstart the process of rebuilding the retailer back into a force from the empty shelves company it is now.
An estimated 74% of creditors passed the company’s CVA which needed a simple majority for adoption with arrears amounting to Ksh3.5 billion.
For context, in March last year, the company had riled the creditors after asking them to take 30% of what was due to them or nothing at all stating that it was too distressed to pay back even half the amount.
Monday’s vote was imposed on Uchumi and the creditors by the High Court after parties failed to agree on the best deal after it became apparent creditors would emerge from the negotiating table scathed more than they would prefer.
The court found itself in a tough position having to consider the best interests of shareholders who are the second-largest interested parties after the creditors in the proposed dissolution plan especially when it was factored in that the company’s liabilities stand at Ksh7.7 billion against assets of Ksh731 million.
The government had issued a letter of support to the process but not all commercial banks have been privy to the deal with only one creditor voting against the CVA.
KCB, Cooperative Bank and Industrial and Commercial Development Cooperation (ICDC) had all struck different deals with the retailer under the CVA plan with KCB and Co-op writing off a combined Ksh656 million in Uchumi’s debt.
The United Bank of Africa (UBA) position remains unhinged as the bank is demanding immediate compensation on balances due.
As it stands, Uchumi’s survival blueprint entails restoring liquidity by making its creditors cede to writing off some of its loans and disposing of some of its land in Kasarani valued at Ksh2.8 billion in the current market.
Mazars Kenya Managing Partner Owen Koimburi is expected to lead the implementation of the CVA once it is approved.