Tuskys inks Sh2bn debt deal after equity stake sale delay

Companies

Tuskys inks Sh2bn debt deal after equity stake sale delay

A Tuskys branch in Nairobi. FILE PHOTO | NMG

Supermarket operator Tuskys is set to raise Sh2 billion short-term debt from an unnamed private equity firm based in Mauritius, with the funds aimed at stabilising operations to make it more attractive to strategic investors it is courting.

Raising debt capital will ease the retailer’s financial pressure, giving it more time to negotiate the sale of a majority stake in a transaction that could delay by six months or more.

Tuskys earlier estimated it needed at least Sh2 billion to survive in the short-term as piling debt led to supplier defections, stock-outs and closure of some stores.

“The Tusker Mattresses Limited board of directors is pleased to confirm that we have signed terms of agreement with a Mauritius-based fund for the provision of a financing facility amounting to just over Sh2 billion subject to fulfilling transaction condition precedents,” the company’s chairman Bernard Kahianyu said in a statement.

“This funding will help alleviate our current capital constraints impacted by Covid-19 and further reposition the business for increasing stakeholders’ value.”

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Details of the loan agreement, including interest rate, repayment period and whether or not it is secured, were not disclosed.

The retailer also declined to reveal the identity of the fund.

It was also not clear whether the debt is convertible into equity.

Tuskys’ move to seek financing from a PE firm comes after the retailer exhausted its local bank lines.

The company earlier this year struggled to repay its bank loans and approached the lenders to restructure the debt.

Revival of Tuskys will spare local banks another round of losses after the lenders lost an aggregate of Sh6.9 billion in the collapse of former retail giant Nakumatt Holdings.

Tuskys is expected to use the Sh2 billion loan to further reduce its debt load as it seeks to win back the confidence of suppliers who lost Sh18.5 billion in the Nakumatt bankruptcy.

“As previously communicated, we wish to reiterate our commitment to resolve the underlying working capital challenges quickly.

“This funding will provide the needed impetus to our overall capitalisation journey,” Mr Kahianyu said.

“The Tuskys board and management will engage all stakeholders in the coming days to agree on business modalities going forward.”

The retailer owes suppliers a total of Sh6.2 billion, with the company saying it has reached an agreement to pay 40 per cent of the amount (Sh2.4 billion) over two years.

Tuskys is being watched by the Competition Authority of Kenya (CAK) after it defaulted on suppliers, a move that resulted in stockouts and closure of some of its branches.

The company added that suppliers have agreed to deliver additional merchandise worth Sh1.2 billion, with goods valued at Sh200 million already supplied.

The revelation comes after Tuskys paid suppliers Sh2.7 billion in June and an additional Sh1.8 billion last month after the intervention of the CAK which has in recent months focused on abuse of buyer power in the retail business.

Buyer power means the ability of a purchaser to extract more favourable terms from a supplier on whom it can also impose significant opportunity costs by, for example, delaying payments.

Tuskys became the first major retailer to face the scrutiny of the CAK’s Buyer Power Department that was created after Nakumatt’s collapse inflicted major losses on a diverse group of stakeholders including banks, suppliers and investors in commercial paper.

The CAK started looking into Tuskys’ operations in April after reports emerged that it was not paying suppliers on time as provided for in their respective contracts.

The fact that the regulator is monitoring Tuskys’ operations is expected to give confidence to suppliers, some whose business with the retailer runs into hundreds of millions of shillings per year.

Paying suppliers on time will see the retailer regain operational freedom from the removal of restrictions imposed by the regulator.

Among other things, the CAK ordered Tuskys to seek its approval before opening new branches or going into new ventures.

The retailer says it is still keen on raising new capital from a strategic investor, adding that suppliers’ funds are now ring-fenced in special bank accounts.

Tuskys has not said how much it intends to raise in the proposed deal.

DTB Bank extended the retailer’s credit facility, pending the raising of new funds from the strategic investor.

Tuskys says it is holding weekly meetings with suppliers as part of its debt management efforts.

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