Kenya’s Nakumatt supermarket chain seeking outside investment

Kenya’s top supermarket chain Nakumatt Holdings wants equity investors to buy nearly half of the retailer next year to help pay for its expansion across east Africa, its managing director said on Thursday.

The chain, which targets middle and upper income customers, has a total of 33 branches in Kenya, Uganda and Rwanda, and hopes to open outlets in Tanzania, South Sudan and Burundi by the end of next year, Atul Shah told Reuters in an interview.

The supermarket wants to attract equity investors rather than rely on costly bank loans, and does not intend to list on the Nairobi bourse for the next four years, he said.

Shah said the chain would initially seek to sell a 15% to 18% stake for US$50 million, and attract international retailers to take up about 25% to 30% thereafter. He did not say how much the second transaction could raise.

The entry of the world’s biggest retailer, Wal-Mart , into Africa this year after it bought a 51% stake in South African discounter Massmart for $2.4 billion is expected to spur foreign investor appetite in the continent’s retail sector, Shah said.

“The easiest for us would be equity partnership with investors . . . targeting $50 million (next year). Part of it will be for expansion plans, capital injection to strengthen cash flow and reduce gearing,” said Shah.

“Beginning of next year, we will be ready to begin talks (with international retailers) to take up about 25% to 30%,” he said.

He declined to say if Nakumatt had been approached or had sought out global brands in the retail sector.

Nakumatt, which launched in 1965 but has been in Shah’s family since 1978, has been approached by South African retailers in the last five years.

Despite rising inflation in the region, rising interest rates, weakening currencies and power cuts, Shah forecast turnover would grow by a third to 40 billion shillings ($425 million) in the year to February 2012.

The Kenyan, Ugandan and Tanzanian shillings, which have plumbed a string of record lows this year amid soaring inflation, are likely to stay under pressure this year, with importers buying hard currency.

With the increased cost of funds after Kenyan banks increased their base lending rates, Shah said Nakumatt has been hard pressed to find cheaper alternatives for raising funds, notably because it is “highly geared”.

He declined to say what percentage of the company’s balance sheet consisted of loans.

“Capex alone  . . . is $20 million for the expansion that we will do next year of about six new branches (throughout the region),” said Shah. (Reuters)

Despite our best efforts, How we made it in Africa cannot cover every single business story on the continent. What you need to know tracks important developments originally reported on by other media organisations.