Tuskys reveals Sh2 billion emergency bailout appeal

Supermarket chain Tuskys says it needs immediate capital injection of Sh2 billion to survive in the short term as it scrambles to win back the confidence of suppliers and navigate a shareholder fallout.

The emergency bailout quest was revealed to the owners of the family-owned retail chain during a board meeting of their investment vehicle Orakam Holdings on June 30, according to minutes seen by the Business Daily.

Tuskys is seeking a strategic investor as one way to raise the funds in exchange for a majority stake under the rescue bid.

“Tuskys’ current financial position is very weak and may not support the business for much longer,” the directors of Orakam were told at the board meeting.

“Tuskys requires immediate capital injection amounting to Sh2 billion.”

DTB Bank #ticker:DTK extended the retailer’s credit facility pending the raising of new funds from a strategic investor, the meeting was told.

It is not yet clear how much the retailer intends to raise from new investors who are to take a majority stake in the company.

While Tuskys informed the Competition Authority of Kenya (CAK) — which is concerned about the retailer’s mounting supplier debts—that it will close the equity deal by end of July, the shareholders were told the share sale could delay to December.

The board meeting was attended by Stephen Mukuha, Sammy Gatei, Yusuf Mugweru and George Gachwe, who own a 17.5 per cent stake each in the company.

John Kago, Mary Njoki and Kenneth Njeri, who each hold a 10 per cent stake in the retailer, were also in attendance.

“The shareholders agreed to the proposal for equity acquisition by the investors who offer most favourable terms,” noted the board minutes signed by all the seven shareholders.

“The shareholders’ internal wrangling which was putting off investors was discussed and it was agreed that this be set aside for now.”

But less than two weeks after signing the board minutes, Mr Mugweru, the fourth born of the seven siblings, vowed to block the deal, saying wrangles among the retail chain’s shareholders were yet to be resolved.

Mr Mugweru reckons his brothers are yet to disclose the whereabouts of some Sh1.6 billion that was the subject of a court suit and is also demanding a forensic audit of the store’s accounts covering the past eight years.

Nearly a decade ago, the retail chain was rocked by a family feud that threatened to tear it down and pulled in the third generation heirs, sparking private and public spats.

Tuskys, which has 53 stores and is Kenya’s second-biggest retailer behind Naivas, was last month ordered by the CAK to clear supplier bills worth Sh1.2 billion by July 16 under new rules meant to cushion suppliers from delays.

The retailer paid Sh2.7 billion before the deadline.

Tuskys has not said how much it still has to pay. It has renegotiated terms for its credit facilities and says it has agreed with suppliers to keep its stores stocked pending the entry of the strategic investors.

Shoppers have for weeks complained of missing essential goods on the retailer’s shelves, suggesting that some suppliers are severing ties with the company amid a cash crunch, which the retailer has blamed on restrictions imposed to curb the spread of Covid-19.

“Suppliers have signed in on a short-term portal hat will ring-fence their supplies and ensure timely payment for the same,” Tuskys said in a public statement released yesterday.

“The option provides the much-needed lifeline for the business and secures a win-win stability option.”

If successful, the proposed deal will mark the latest transaction in the competitive and capital-intensive supermarket business.

Tuskys’ top rival Naivas, for instance, recently raised more than Sh1.5 billion from a consortium of investors, including the International Finance Corporation and private equity firm Amethis.

The regulator said that should an investor apply to acquire a significant stake in the retailer, the review of such a filing will be fast-tracked.

Sources familiar with the matter told the Business Daily that Tuskys is seeking to sell a majority stake to a PE firm that has existing operations in the retail business. This is expected to benefit Tuskys from the supply of both new capital and technical expertise.

The proposed transaction, if successful, will see the new investor take control of the board and management of the family business that was founded by the late Joram Kamau.