World Bank arm buys Sh1.5bn Naivas stake

The International Finance Corporation (IFC) is set to acquire a minority stake in retail chain Naivas International Limited for $15 million (Sh1.5 billion).

The global financier is part of a consortium of investors, including PE fund Amethis Finance, that will provide billions of shillings to Naivas, which is controlled by the Mukuha family.

IFC, which is the World Bank’s private lending arm, will enter Kenya’s retail sector where the collapse of one of the major players in recent years has left a gap.

“IFC seeks to make an equity investment alongside Amethis which will result in a minority stake in the company,” IFC said in a disclosure.

“Naivas is majority owned by the Mukuha family who as part of this transaction will dispose part of their shareholding to a special purpose vehicle owned by IFC, Amethis and other co-investors. The Mukuha family will remain in the business as the main shareholders.”

The specific stakes to be held by IFC, Amethis and other investors was not immediately clear.

The new capital injection is earmarked for expansion in the highly competitive local supermarket business that has attracted major players including the Majid Al Futtaim-backed Carrefour franchise.

“Through the proposed investment, IFC is expected to help the company optimise business operations and further strengthen its corporate governance structures,” IFC said.

“IFC will provide a food safety advisory programme that will ensure that the company complies with the Global Good Agriculture Practice (GGAP) that is more stringent than local standards.

IFC will also help the company improve environmental and social (E&S) standards across its operations.”

Naivas is one of Kenya’s leading supermarket chains, with more than 60 stores nationwide. It was established over 30 years ago by the Mukuha family.

South Africa’s Massmart

It became one of the top three retailers after the collapse of Nakumatt, which had dominated the sector.

The dissolution of the Nakumatt business has also created an opening for other international retailers, including France’s Carrefour and South Africa’s Shoprite.

Naivas recently outbid rivals to acquire six stores from the collapsed Nakumatt Holdings, paying Sh422 million in the transaction. It has been expanding aggressively in the local market in the past decade.

In 2013, South Africa’s Massmart was seeking to buy a majority stake in Naivas, but the deal collapsed following a shareholder row in the family-owned supermarket.

Massmart, which is owned by the world’s biggest retailer Wal-Mart, had planned to use Naivas as a launch pad for its East Africa expansion.

The new IFC backed capital is expected to help it run these new stores besides the potential to open others. The supermarket business has attracted more players including foreign firms that are better-funded compared to local players.

The foreign companies include South Africa’s Game and Shoprite supermarkets.

Naivas’ capital raising comes months after rivals Quickmart and Tumaini merged following their acquisition by Sokoni Retail Kenya, a special purpose vehicle controlled by private equity firm Adenia Partners.

Naivas has said that its growth strategy in the short term will be defined by increasing the number of its branches in strategic towns across the country and scaling up the more capital-intensive food market concept it pioneered with a maiden branch at the Capital Centre on the Nairobi-Mombasa Road.

The retailer, which is implementing the food market idea in partnership with a local interior design firm Renova Limited, is preparing to officially launch the latest fresh food stores over the next few weeks.

The fresh food concept is a design strategy that allocates more space to fresh food categories and involves clever displays and sometimes supermarket architecture overhauls, to accommodate inventories that match evolving customer needs and improve customer experience.

Naivas’ growth curve paints a contrasting picture of the local supermarket sector whose recent events have painted a grim picture of the industry.

It follows the death of former giant supermarket chains such as Nakumatt and Uchumi. Audits have blamed internal fraud, money laundering and mismanagement for the woes facing some retail chains in the country.