Uchmi: Government not serious about revival

There has been conflicting statements lately from senior govermernt officials. Finance minister Kimunya is quoted as having said that 'the situation is not irreversible'. Trade counterpart underwhose docket this falls had made many comments all aggregating to that the goverment will not let uchumi fall. He has also appointed a committe to investigate the circumstances leading to the collapse of the retail gaint.

However, most important is the statement expected to be read today in parliament by Dr. Kituyi. He is expected to detail how exactly the government expects to help uchumi. Kituyi has seperately complained that his ministry is only a minority shareholder (read 9% through icdc and kwal) and was not involved in the board decisions. This poits at failure on the part of the minister himself. The ministry was represented at the board by Joseph Munene, MD of ICDCI who is an appointee of the minister, and who he has duly sacked. If Munene did not brief the minister on the going ons at uchumi, then the ministry failed to excercise their oevrsight and supervisory role as a significant shareholder on behalf of taxpayers. Seniors should take responsibility for acts of ommission on the part of their junoirs. Tha's what Kituyi should be.

Any investigation initiated by Kituyi will not reveal the truth on this matter. He will work day and night to cover his implied responsibilty on this collapse. Any efforts towards reviving the chain that do not take into account the oversight weaknesses illustrated by the miniter's ignorance will also not bear fruit. it will be a case of more good money after bad money.

The key to reviving uchumi therefore lie with the creditors and suppliers who are owed billions and n0t the ministry. the minister should step back onto a facilitation role and not that of executive decicion making.

Kirubi: Some Small Investors Barely Crying Foul

Retail investors are both the biggest losers and also the biggesr beneficiaries of the Uchumi upheaval depending on how you look at it. These retail investors can be classified into broad categories

Inverstors who bought Uchumi at the IPO and held on
These are mostly elderly kenyans who have had faith in the market and have remained true to their believe of looking long term. they have seen better days of uchumi in the eighties and early and mid nineties with consistent dividend payouts. they are the greatest losers for the collaspe.

Investors who bought uchumi rights for long term prospects
Many new investors came into Uchumi during the rights issue primarily due to the sleek marketing of the issue by stockbrokers and investment managers. The huge discout given on the issue (sold at 10/= while the market price was 14/-) also lured many kenyans. lMost of these investors have held the stocck waiting for additional capital gain. They have lost their money.

Speculators eyeing quick capital gains.
However, there also other investors who were keenly aware that the numbers at Uchumi were not adding up. They knew the chicken would come home to roast but not when. After the rights were listed there was turbulent trading on the stock whcih offerd them 50% or even 100% return. It was normal for uchumi to trade at 15/= this week and then 19/= the next week before quickly stabilising at 16/=. This turbulence is what these investors sought to capitalise on..... only this time, it caught up with them. such investors therefore are merely crying foul as they knew this was bound to happen sooner or later. These Investors made millions in the eight months before closure of Uchumi.

Uchumi case very deiffrent from Enron's

have read the posts of various bloggers here on blogspot and elsewhere on the subject of Uchumi. People are now expressing their opinins freely and this is inherently good for out capital markets and many more will get enlightened. Blogs such as bankelele have enabled people to debate freely which is largely new in Kenya. Howver, am concerned about guys who are now comparing the uchumi saga to the Enron case of the us. This shows basic ignorance of how finacial markets operate. For starters, Ken Ray and Jeff Skilling of Enron were accused and convicted not of being chairman and CEO respectively when Enron collapsed, but of deliberately lying to investors and other stakeholders about the state of the financial stateof the company for a long time before collapse. Infact the auditors of Enron M/S Arthur Anderson were also founf guilty of distracting justice by shredding key documents in the company just before investigators moved in. Kirubi, there fire cannot be accused of similar crimininal activity. He had left the company more than one year before collapse. While he was leaving, he made it clear to all who know that the company was very much in the red. Investors put in their money despite Kirubi's caveat. Besides, there is no law to regulate that in kenya.

In the last few days, the kenyan media has been dominated by a vicious debate revolving around the closure of Uchumi Supermarkets(USL). Unfortuantely, this discourse has not been geered towards uncovering the truth regarding Uchumi or helping investors make better decisions in future. Instead, it has been a rather uncomproming blame game. Business writers who should be relied upon for informed analysis of such events have instead engaged in what appears to be a systematic attempt to settle old scores by way of mud slinging. Nowwhere did such mud sliging happen better than in an article by Mr. Washington Akumu in the Daily Nation of 2nd July 2006. In the article, Akumu blames all the woes on Chris Kirubi, primaorily because Kirubi chaired the the baord at the time when a series of events that are beleived to be the reason the closure took place. First was the headhunting of Kenedy Thairu to head the manageemnt of the chain. I agree with the author when he says that, being a man of modest education, Mr. Mugo could not be relied upon to take USL to the next level of growth after the exit of long serving CEO Sureah Shah. Hence the need to replace him with a more modern looking and IT savvy individual as visualized by Mr. Kirubi. The outcome of such a recruitment process could go either way and the chairman of a board cannot be blamed in isolation for a botched recruitment process of a CEO. In fact the writer concedes that the recruitment was spearheaded by other directors of USL notably Isaac Awuondo and Tony Wainaina. By paiting these two respected business leaders simply as stalwats of Mr. Kirubi, the author risks discrediting his well-earned business writing credentials. Mr. Awuondo is a long serving CEO of> Commercial Bank of Africa. During his tenure, the bank has experinced phenomenomal growth in volumes and earnings. He sits on the boards of many other local companies. Mr. Wainaina too presided over a largely sucessful tenure as CEO of listed investment firm; ICDCI. To insiniuate that these two are not independent minded and that they were acting on Mr. Kirubi's behest is simply misleading.

Clearly this writer has personalised this mater. But nothing infuriated him more than the 'botched expansion of USL. I still believe that in principle, the decision to expand by way of opening up new stores was right. Isn't that how Walmart grew into the largest retailer in the world? And isn't it how Nakumatt and Tuskermat, Uchumi's competitors are doing so sucessfully? As chairman, Kirubi was responsible for broad policy decisions. The day to day implementatin of such decisions, as the author will concede are left to management, headed by a CEO. In the case of USL, once the decision was made to open up more stores, this was passed down to Thairu for implementation. Issues like where, when to open the stores were there fore the CEO'S take as was how to fund the project. The CEO was to seek expert advise from within and without the comnpany as to what best finacing model to adapt. Boards normally rely on research and papers presented to them by CEOs to make decisions.

All indications are that in 2001, Thairu presented his expansion proposal including fiancial forecasts to the board. Apparently, he believed that the expansion could be sufficiently funded by internally generated cash. He 'proved' there was no need to approach the shareholders to raise cash for the project. The board promptly approved the proposal. Buoyed by an agggressive advertising regime manned by Scannad, the project seemed to be on course till September 2003 when the company first posted a loss of Kshs. 246m for the period ending 30th June 2003.
One may ask, What was the Chairman's responsibility at that point? Very little information is in the public domain reagarding the activities of the management and indeed the board at the time. However, Kirubi had correctly diagonised the problem and given what would have been the correct prescription. He appreciated that the USL's management had been entrusted to Thairu's people who did not have the required expertise to run such a large retail chain let alone preside over the then ongoing expansion. This had led to the now famous capital mismatch. His prescription?;bring in such expertise as was needed. Two options were available; hire managers with the right expertise or get into an arrangement with a strategic investor. The first option was not appealing as Thairu's team were a result of a similar excercise. It also would not have solved the issue of financing.

It is now on record that Kirubi chose and passionately pushed the second option.South African retail giant Pick N' Pay was identified and contact was made.Other than bringing in the much needed expertise, the strategic investor was expected to inject fresh capital to correct the assets mismatch. It is also on record that Kirubi's efforts were frustrated by the board. Even after a trip was organised for them to South Africa, to study retail operations, they did not buy his vision of a "modern IT -Savvy supermarket growing into the region". It appears that majority in the board felt that Thairu should be given time to get his grove back, thus the bravado talks that "things could not get worse, only better" and that "Uchumi had bottomed out and was headed up". Faced with a hostile board, Kirubi was helpless. It's Kirubi who finally pulled the rug from Thairu's feet, refusing to renew his contract when it expired. Finaly when he could not be sure of thje board's support, a frustrated Kirubi resigned.

In the same article the writer appears to say that Kirubi committed a crime by offloading hios stake in USL last year. This could not be further from the truth. Is Kirubi not an investor like any other? Isn't he entiotled to earn a good return, protect his capital like you and me? The boards refused to support his vision, didnt he have the right to put his money in another venture. Was he saposed to wait and see his investment wiped out like has happened for other shareholders? These are the salient questions that ought to be asked. Moralistic answers to them cannot suffice.