East Africa: Financial Hole That Forced Choppies to Flee East Africa

Financially troubled Botswana-based retailer, Choppies Enterprises Ltd (CEL), has disclosed a combined $16.5 million impairment loss in Kenya and Tanzania, shedding new light on its decision to hastily exit the East African market.

Choppies took the biggest financial hit from the Kenyan operations at $15.39 million even as competition denied it room to operate profitably in the country.

The retail chain also piled up huge supplier debts, whose payment it says will be made from the sale of its stores and assets.

"The bank loans in Kenya will be part of the group's facilities in Botswana. The remaining suppliers' payments will be made from the proceeds of the sale of the stores and assets in Kenya. There is no bank debt for Choppies in Tanzania," Choppies chief executive Ramachandran Ottapathu told The EastAfrican.

The firm declined to reveal the value of the outstanding debts to suppliers and financial institutions in both Kenya and Tanzania, but The EastAfrican has independently learnt that Kenyan suppliers are owed close to Ksh1 billion ($10 million).

"We are in a closed period and we cannot reveal any information to media on the numbers," said Mr Ottapathu.

Choppies closed its Tanzanian operations in November last year, and efforts are now being made to sell assets and clear outstanding liabilities while the retailer plans to fully exit Kenya this year.

The retailer, which is a subject of investigations by the Competition Authority of Kenya (CAK) over the delayed payments to suppliers, is facing hurdles in its bid to exit the country after entering into a memorandum of understanding with the Association of Kenya Suppliers (AKS) committing to clear all outstanding arrears to suppliers before closing shop.

"We had a memorandum of understanding (MoU) between ourselves and Choppies on payment of the outstanding debts to the suppliers and the ultimate thing was actually to clear all the outstanding debts to suppliers," AKS chief executive Ishmail Bett told The EastAfrican.

"However, what they have kept telling us is that they will not exit Kenya before they clear all debts owed to suppliers. That is the assurance they gave us. So we are still holding on to their assurance. Nonetheless, it is still something we are following up and we have already informed CAK, which is doing investigations and we are yet to see any payment plan they have submitted to CAK."

In 2016, Choppies invested Ksh1 billion ($10 million) to acquire a controlling stake (75 per cent) in the then-struggling Ukwala Supermarkets, with the remaining 25 per cent equity being held by a Tanzanian firm, Export Trading Group.

Investigations by CAK last month revealed that four retailers in Kenya had delayed payments to their local suppliers for a period exceeding 90 days, of which three, upon engagements with the authority, presented staggered payment plans.

Southern Africa's retailers have over the years found the going tough in East Africa.

Last week, South Africa's Shoprite Holdings also announced plans to close its second branch at City Mall in Nyali, Mombasa in Kenya and send home 115 workers.

The process takes effect on August 31.

Shoprite, which is exiting markets outside South Africa, in April this year closed its Nairobi's Karen branch, shedding 104 jobs.

Choppies Kenya operated 15 stores, of which 12 were acquired from Ukwala Supermarkets. The firm has, however, scaled down operations to only two stores, but says negotiations are on-going to sell equipment to local operators and or existing landlords to clear some of the outstanding liabilities.

This year, the retail chain, in a circular to shareholders dated March 19, announced discontinuation of operations in several African countries, among them Kenya and Tanzania.

Choppies, which is listed on the Botswana Stock Exchange (BSE) and cross-listed on the Johannesburg Stock Exchange (JSE), has also shut down operations in Mozambique and placed its South African business on auction, with a plan to concentrate on growing its market share in its home country.

It also restructured its outstanding loan estimated at $58 million and recapitalised to the tune $12.83 million.

The retailer has further restructured its management with hopes of regaining its footing in the grocery and merchandise business.

It has also negotiated restructuring of its outstanding loan owed to a group of lenders including Absa Bank Ltd, Barclays Bank of Botswana Ltd (now Absa Botswana Ltd), First National Bank Botswana Ltd, Stanbic Bank Botswana Ltd, Standard Bank SA Ltd and Standard Chartered Bank Botswana Ltd.

The loan stood at $58 million as at September 19, 2019.

Under the revised loan agreement, the lenders agreed a five-year repayment period commencing July 1, with interest payable on a monthly basis.

Initially Choppies operated about 217 stores in Botswana, South Africa, Zimbabwe, Zambia, Kenya, Tanzania and Mozambique.

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