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Competition in Dar, Kenya sends Choppies out of East Africa

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JAMES ANYANZWA

By JAMES ANYANZWA
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Choppies—the Botswana-based supermarket chain that about four years ago embarked on an aggressive expansion drive across Africa—has beat a hasty retreat to cut mounting losses in new markets.

The retail chain has, in a circular to shareholders, announced discontinuation of operations in several African countries, among them Kenya and Tanzania.

Choppies Enterprises Ltd (CEL), which is listed on the Botswana Stock Exchange (BSE) and cross-listed on the Johannesburg Stock Exchange (JSE), has also shut down its 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 has also restructured its outstanding loan estimated at $56 million, as part of tactical measures intended to breathe life into a firm weighed down by deepening losses attributable to stiff competition in the retail space.

Choppies had classified its operations in Tanzania, Kenya, Mozambique and South Africa as being distressed.

The firm has also recapitalised to the tune of pula 150 million ($12.76 million) and restructured its management with hopes of regaining its footing in the grocery and merchandise business.

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The fresh capital comprises a pula 100 million ($8.51 million) loan from two founding shareholders and pula 50 million ($4.25 million) from trading operations.

The restructuring meant to save the sinking business was announced in a circular to shareholders dated March 19, 2020.

The circular reveals that Choppies decided to close its Tanzanian operations in November 2019, and efforts are now being made to sell assets and clear outstanding liabilities.

“In order to stabilise the business and enhance shareholders’ value, Choppies has exited all the loss-making markets,” the circular states.

In Kenya, the firm has 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.

The retailer bought a 75 per cent stake in Kenya’s Ukwala Supermarkets for Ksh1 billion ($10 million) in 2016 as a launch pad for its entry into the East African market.

The remaining shares are held by local shareholders—the Export Trading Group (ETG).

In Mozambique, Choppies closed operations in September last year and moved most of its equipment to its Zambian subsidiary.

In South Africa, the country’s competition watchdog (Competition Commission of South Africa) has approved a proposal by Kind Investment Proprietary Ltd to acquire Choppies’ shares and claims in its four South African businesses, without conditions.

Under the terms of the agreement, Kind Investment will acquire all the issued shares held by Choppies and loan accounts advanced by the firm to each of the subsidiaries.

These subsidiaries are Choppies Supermarkets SA Proprietary Ltd, Choppies Warehousing SA Proprietary Ltd, Choppies Logistics Proprietary Ltd and Motopi Holdings SA Proprietary Ltd.

The transaction was scheduled to be completed on April 1, 2020 after the two firms fulfilled the conditions for the acquisition that included approval of the deal by the lenders, competition watchdog and the Botswana and Johannesburg Stock Exchanges.

Choppies’ South African subsidiaries have been bleeding cash for the past two years, wiping out all reserves that would have been used to pay off suppliers.

As a result, dealers refused to supply goods—causing stock outages in its South Africa stores and loss of market share.

Choppies did not have financial muscle to absorb the losses of its South African subsidiaries and as a result the continued failure to service debts owed to trade creditors exposed the firm to threats of application for the winding up of the SA subsidiaries.

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

According to the circular, the firm has also negotiated a 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 pula 680 million ($56 million) as at September 19, 2019.

Under the revised loan agreement, the lenders agreed a five-year repayment period commencing July 1 2020, with interest payable on a monthly basis.

According to the circular, the lenders also agreed to stop making demands for immediate and full payment of the principal balances.

The lenders had demanded the principal balances of the loan to be payable in full and on demand after Choppies defaulted on its loan obligations in various instances.

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