Tuskys keeps watchdog in the dark about redemption
- The Kenya Competition Authority (CAK) said Tuskys was silent and did not disclose the identity of the Cayman Islands-based tax haven fund more than 16 months after the retailer announced a financing agreement.
- The authority announced in July last year that it would vote on any Tuskys investment proposal within two weeks, speeding up a process that typically takes months.
- Tuskys was ordered by the competition watchdog to clear supplier invoices worth 2.77 billion shillings in June last year under new rules to protect suppliers against delays.
The competition watchdog has revealed that it was ignoring the mystery of an offshore investor seeking to buy out cash-strapped Tuskys supermarket chain amid doubts over the existence of the 2 deal. , 1 billion shillings.
The Kenya Competition Authority (CAK) said Tuskys was silent and did not disclose the identity of the Cayman Islands-based tax haven fund more than 16 months after the retailer announced a financing agreement.
The authority announced in July last year that it would vote on any Tuskys investment proposal within two weeks, speeding up a process that typically takes months.
The retailer rejected a creditors’ petition in court to reveal the offshore investor.
“They came to tell us that they were looking for a strategic investor and I never saw them again,” Wang’ombe Kariuki, managing director of CAK, told Business Daily in an interview.
“But at least in terms of intervention, we were able to recover over 2.5 billion shillings for around 250 suppliers and I can say that this is not the same situation that happened during Nakumatt.”
Nakumatt, which has grown from a mattress store in Nakuru to branches across East Africa, was forced to close last year as it struggled to repay suppliers, owners and other creditors.
Tuskys was ordered by the competition watchdog to clear supplier invoices worth 2.77 billion shillings in June last year under new rules to protect suppliers against delays.
Creditors led by electronics firm Hotpoint Appliances have asked Tuskys in court to reveal the identity of the financier, suggesting the retailer is using the 2.1 billion shillings deal to delay an action in which more than 60 creditors are seeking liquidation for unpaid supplies.
They also research details of the loan agreement including the interest rate, repayment period, and whether or not it is secured.
Tuskys says he will not reveal the identity of the investor and the terms of the financing transaction, which was touted last August as a quick deal to stabilize operations and make it more attractive for an acquisition.
“As is customary in similar transactions, the applicant is unable to disclose the identity of its investor or details regarding the terms and conditions of transaction documents prior to financial close due to an agreement of non-disclosure, ”said Shadwick Okumu, interim CEO of Tuskys. a response to the court file.
“Disclosure despite these conditions would be in bad faith and jeopardize the entire transaction.”
The retailer’s opposition to naming the fund offshore emerged in the lawsuit where creditors led by Hotpoint Appliances are pushing to liquidate the supermarket chain on a debt of 1.02 billion shillings.
Tusky’s total debts, including bank loans, exceed 10 billion shillings, and lenders have cut new lines of credit.
Creditors are asking for disclosures on the 2.1 billion shillings deal that is critical to the survival of the retail chain.
Since announcing the 2.1 billion shillings deal, Tuskys has lost employees, stores, customers and suppliers as its cash flow problems worsened.
Tuskys, until recently Kenya’s largest retailer with 53 stores, has fewer than 10 outlets while they are out of stock.
In its heyday, the retailer was an acquisition target for global giants seeking a foothold in East Africa like Walmart.
The investor intending to provide Tuskys with the 2 billion shillings loan sought to secure the debt using all the stock of the supermarket operator, endangering the property of existing shareholders in the event of default.
The anonymous investor, based in the Cayman Islands, a tax haven, was prepared to disburse the funds but asked Tuskys shareholders to approve the deal, including the pledge of the shares.
This forced Tusker Matttresses Limited, owner of the Tuskys brand, to call a shareholders’ meeting in September last year to approve the use of the shares as collateral for the debt.
Two minority shareholders of Tuskys seek to sell their combined 27.5% stake in the retailer, taking a different route from their siblings who voted for a 2.1 billion shillings loan to save the company .
Orakam Holdings – the investment vehicle that owns 100% of Tuskys – said a majority of its shareholders approved the increase in debt to an offshore fund.
The debt will be guaranteed by shares of its investors controlling a total stake of 72.5%, putting the shares at risk in the event of default.
But Yusuf Mugweru, who owns a 17.5% stake in Tuskys, and his brother – controlling 10% of the retailer – want to sell their shares to the offshore fund or any other investor. Tuskys’ decision to seek funding from a private equity firm comes after the retailer runs out of local bank lines of credit.
The supermarket chain has asked the court to freeze the liquidation files for a year and allow it to continue repaying debts, arguing that its financial position remains redeemable and its business commercially viable.
Kenya’s retail sector has seen two major supermarket chains collapse in recent years, as Carrefour franchisee Majid al Futtaim entered the market and became the second largest retailer in just four years.