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Nakumatt’s commercial paper investors to lose Sh4b after fall

By Lewis Njoka
Monday, January 13th, 2020
Nakumatt stores. Photo/PD/File
In summary

Holders of commercial papers and unsecured creditors will be the biggest losers following the collapse of the giant retailer, Nakumatt, as they stand the lowest chance of recovering money owed to them even after liquidation.

Unlike other creditors, commercial papers holders are sure to lose the entire sum amounting to Sh4 billion owed to them by the retailer. 

A commercial paper refers to a short-term unsecured debt instrument (promissory note) issued by a company typically to finance accounts payable, inventories and meeting short-term liabilities.

Holders of the papers, according to Nakumatt’s court-appointed administrator, Peter Kahi,  include StanChart Bank, Kenindia Insurance and Chania Veterinary Distributors.

Little amount obtained from the sale of Nakumatt’s assets will be distributed in order of preference with the administrator himself and preferential status creditors having the right to receive payment first, he said.

Remaining stores

Worse still, the company, which owns almost no fixed assets, has only Sh422.5 million made from selling the six remaining stores to a competitor, Naivas, against an outstanding debt of Sh38 billion. 

The first to be paid are debts incurred by the administrator, including administration fees, goods supplied and salaries accrued during the administration period.

Since 2018, the administrator, allied to PKF audit firm has made Sh51 million in administration fees.

Second to be paid, according to Kahi, will be preferential creditors namely Kenya Revenue Authority (KRA), National Social Security Fund (NSSF) and land rates owed to county governments. Nakumatt owes KRA Sh2.1 billion in taxes accrued and NSSF Sh78 million. 

If any money remains after paying the first two categories, secured creditors, mostly banks, will be third in line to be paid. Luckily, these have properties charged against the loans hence could recover money owed by disposing of collaterals.

Properties Nakumatt used to acquire loans include its headquarters on Mombasa Road and others owned by sister companies and third  parties. 

According to the administrator, Nakumatt used a Sh2 billion property in Nairobi owned by Collogne, Park View Shopping Arcade (Sh600 million), a Sh220 million plot in Westlands under Nakumatt Investments, an office block valued at Sh350 million in Mombasa and River View Plaza worth Sh200 million, to acquire loans.

The retailer owes Diamond Trust Bank Sh3.6 billion, Kenya Commercial Bank Sh1.9 billion, Bank of Africa Sh328 million, Standard Chartered Sh900 million, and United Bank of Africa 126 million and GT Bank Sh104 million among others.

The last to be paid, after the liquidation process is over, are the unsecured creditors. Most suppliers to the supermarket and landlords fall in this category.

Unsecured creditors

Nakumatt owes unsecured creditors Sh18 billion with over 50 companies owed millions of shillings by the fallen retail giant. Some of the suppliers owed by Nakumatt are Brookside Dairy, New KCC, KenIndia Insurance and Haco Industries.

Unlike commercial paper holders and short term note holders who will suffer 100 per cent loss on debts owed, other creditors, including the unsecured ones, could recoup 46 per cent of money owed by claiming tax returns from KRA (30 per cent income tax and 16 per cent VAT).

“Suppliers will get those refunds, the guys who will get zero are the commercial paper holders. They are not suppliers of goods, so that is not vatable,” said Kahi.

There are fears that many suppliers may not survive the economic shock that comes with losing a major outlet such as Nakumatt and may end up going under. Nakumatt staff are owed Sh400 million by their collapsed employer.

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