Secrets of the Tuskys papers

Its branch network of more than 60 outlets spread across East Africa, with a workforce of more than 5,000 had sold goods worth Sh40.7 billion.

The retailer had also recorded a profit of Sh369 million after tax. No supplier had publicly claimed any money from the retailer.

Outlets in Mombasa, Kisumu, Nakuru and Kisii had raked in a combined Sh4.8 billion in 2019, yet their efforts were nowhere near the sales registered in Nairobi alone.

And the trend had been the same, if not better, for nearly a decade.

But by the time President Uhuru Kenyatta announced a partial economic shutdown owing to the coronavirus, Tuskys’ dirty little secret had started to spread like wildfire.

The retailer was, somehow, flat broke. It had not been paying suppliers, landlords, banks and other creditors. At first, the retailer admitted to owing Sh6.2 billion.

But an insolvency petition filed by Hotpoint Appliances that has attracted dozens of creditors has since revealed that Tuskys’ debts are more than Sh10 billion, majority of which is owed to companies and individuals who have no security to protect their dues.

Many of the creditors that have joined the suit claim that Tuskys issued them with bouncing cheques. 
To date, everyone asks the same question, which can only be answered by the family of Tuskys founder Joram Kago – where did the billions go?

Over the past two years, Tuskys has sold goods worth Sh537 million – slightly more than 1 per cent of the figures the giant retailer would hit before trouble started in 2020.

Read: Tuskys: Once billion-shilling empire now has only Sh41 million

For the better part of the last decade, Mr Kago’s sons – Samwel Gatei, George Gashwe, Stephen Mukuha, John Kago and Yusuf Mugweru – were engaged in vicious fights that have hampered any opportunity to save their father’s legacy.

Mr Mugweru fell out with Mr Mukuha and Mr Gashwe in December, 2011, when he accused the two brothers of diverting Sh1.6 billion from the Tuskys coffers. The money was wired to companies owned by Mr Mukuha and Mr Gashwe, but which were being passed off as the retail chain’s subsidiaries in the books of accounts.

A confrontation between Mr Mugweru and Mr Mukuha at the company headquarters on Mombasa road ended with the latter being charged for assault.

Mr Mugweru reported that his brother beat him up in front of staff members as the two were arguing about production of Tuskys’ books of accounts to verify the claim of missing funds.

Mr Mukuha and Mr Gashwe have over the years branded their brother as stubborn because he opposed most of the retailer’s plans.

Mr Mugweru, for his part, insists that his brothers have stolen from the family business and insists he will not get on board any of their plans until Tuskys’ detailed books of accounts are produced for scrutiny.

Mr Gashwe and Mr Mukuha were in 2016 charged with stealing Sh1.6 billion from the family business, and the case is still before court. Efforts to reach an out-of-court settlement have on many occasions hit a brick wall.

In 2015, Mr Mugweru notified his siblings of an intention to wind up Tuskys on account of irreconcilable differences.

But the Insolvency Act, which came into effect in 2015 changed the process of winding up companies.

The Act provided that the Attorney General’s office would publish rules on how shareholders can wind up firms. But the rules have never been published, hence Mr Mugweru’s move suffered a stillbirth.

Among the bones of contention were insider loans. Mr Mugweru was also uncomfortable with the fact that Mr Gashwe and Mr Mukuha were among the suppliers.

Feuding siblings

Companies associated with Mr Mukuha and Mr Gashwe would get first priority in payment, while others would have to wait until their goods had been sold.

The other four brothers at one point offered to buy Mr Mugweru’s shares for Sh100 million. He rejected the offer, and instead offered to buy all his brothers’ shares at the same rate.

But even as the siblings were fighting over their father’s legacy, they did enjoy hefty salaries and dividends.
In 2009, for example, shareholders received Sh206 million in dividends. At the time, each director – John Kago, Mr Gatei, Mr Mukuha, Mr Gashwe, Mr Mugweru and Mr Frank Kamau (finance director not related to the Kagos) – were each earning Sh513,000 in salaries every month.

Mr Mugweru owns a 17.5 per cent stake in Tuskys through his Mugweru Investments.

The other shareholders at Tuskys are Mr Kago (10 per cent) through Green Pharm Investments, Mr Mukuha (17.5 per cent) through Mitiki Investments, Mr Gatei (17.5 per cent) through Future Group Ventures Investments Ltd, Mr Gashwe (17.5 per cent) through Aliann Investments Ltd, Monica Njeri (deceased, 10 per cent) through Kendan Investments Ltd and Ms Mary Njoki (10 per cent) through Njowawa Investments Lt.
Ms Njoki and Njeri are sisters of the feuding Kago sons.

In 2010, the director salaries rose to Sh638,000 each.

Despite paying millions for security and spies to stop internal leaks, Tuskys lost a lot of money to rogue staffers.

By 2015, Tuskys was losing Sh100 million every month to shoplifters, some of whom were employees.
Between 2017 and 2020 Tuskys parted with Sh30 million for an interesting security package.

The package, offered by Syndicate Agencies, saw it install CCTV cameras and other security apparatus in several branches. The deal also provided for two sets of spies – one to watch over employees with sticky fingers and another stationed at rivals such as Nakumatt.

The spies that watched employees were each paid Sh35,000 a month, while those stationed in rival outlets were paid Sh42,000 a month.

Interestingly, it was the collapse of Tuskys that saw the siblings speak in one voice for the first time in a decade.

Read: How family feud is killing Tuskys founder’s dream

Initially, Mr Mugweru opposed the planned capital injection by Shield Fund PLC, insisting that he would not consent to anything before being shown the retailer’s books of accounts.

But he has since agreed, to an extent, to have the company attempt a rescue plan dubbed Project Kijani.
On August 25, 2020, just over one week after Hotpoint filed the insolvency petition, Tuskys announced that it had secured an investor from Mauritius who would pump in Sh2.1 billion to save the business.

At the time, 53 landlords across the country had kicked Tuskys out of their buildings as auctioneers desperately tried to sell any of the retailer’s assets.

Despite the turn of events, some Tuskys branches were still operating with a small group of demoralised staff that had gone for months without pay.

The Mauritian equity fund had come as an angel in the toughest of times, and even released Sh500 million to pay landlords, suppliers and staff.

While Tuskys has to date refused, even after court orders, to reveal the identity of the investor, the Nation has learned that the entity that signed a contract with the retailer is Shield Fund PLC.

Shield Fund was to inject Sh2.1 billion after Tuskys met some of its conditions.

Nearly 17 months later, Tuskys seems to have inched closer to death as it struggles to retain the seven branches left.

Last Monday, Equity Bank initiated the auction of a commercial building owned by Tuskys and which is likely to drop the retailer’s network to six branches.

Biggest retail chain

Equity Bank is seeking to recover a Sh650 million loan issued to Tuskys in 2014, and plans to auction the building at the junction of Tom Mboya Street and Accra Road in Nairobi. The auction is slated for March 2.  

From the turn of events, the fine print in Tuskys’ contract with Shield Fund could become the shovel used to bury what was once East Africa’s biggest retail chain and a shining beacon of how to run a family business.

To have the full Sh2.1 billion released to it, Tuskys was to ensure that all creditors hold off on their claims pending restructuring of the business. The retailer was also to somehow retain its most profitable branches to make profitability a reality.

At least 20 branches had to be retained for a fighting chance. Most of the branches were in Nairobi (12) and Nakuru (2). The other branches were in Kilifi, Kitale, Kisii, Kisumu, Meru and Naivasha. 

Mr Chadwick Okumu, the man tasked with overseeing a turnaround, has threatened to sue landlords and some of Tuskys’ competitors like Naivas and Quickmart for snatching key branches that were key to survival.

Mr Okumu took over as Tuskys CEO after the retailer parted ways with Mr Dan Githua in early 2021. Mr Okumu claims in court papers that landlords colluded with competing outlets to kick the supermarket out of strategic branches.

Aggressive expansion by Naivas, Carrefour and Quickmart has seen the outlets take up space that was previously occupied by Tuskys.

In court, Justice Francis Tuiyott had issued orders barring attachment of the retailer’s assets. But the judge also held off hearing applications for temporary relief, which Tuskys now believes allowed landlords and rival retailers to prey on assets worth at least Sh1 billion.

Mr Okumu claims that in the time that the courts refused to hear applications for temporary orders, some landlords attached Tuskys’ stock and equipment, and sold them to rival supermarkets that took up the space.

The biggest chunk of the Sh1 billion equipment and stock, Mr Okumu claims, was attached by owners of United Mall in Kisumu.

Read: Inside Tuskys’ spying system, theft syndicate and debt crisis

“Unfortunately, landlord collusion with competing brands has presented a new reality, in that most of the equipment and assets previously earmarked for sale and transfer for value have either been appropriated by the premises’ landlords and are currently in use by the competing brands that now occupy the premises, or were illegitimately or irregularly sold by respective landlords as part of their contemptuous distress for rent and forfeitures,” Mr Okumu says.

“Tuskys intends to commence appropriate legal action against the landlords and all third parties involved in the conversion of its assets in due course. Tuskys expects that it will, at the very least, be able to recover some of value of the same assets or make arrangements for the value thereof to be netted off from the debts truly owed to the landlords in question,” Mr Okumu adds.

Tuskys was also required to get approval of all creditors to suspend debt demands until the supermarket chain was in a position to make profits.

The retailer was also required to ensure that suppliers, who form the bulk of creditors, bring in new stock to strategic branches. New stock would be paid for almost immediately.

Many creditors opposed the request, further stalling Shield Fund’s capital injection.

Creditors insist that for them to suspend collection of debts, part of the older dues must be paid as a sign of goodwill.

Mr Okumu says that a new strategic plan is in place, and that the supermarket chain intends to clear all its debts within 15 years.

“Notwithstanding this, Tuskys, its bankers and financiers are still renegotiating and reworking the terms of the capital injection, with all factors indicating that the parties are likely to make headway and reach a mutual agreement soon,” Mr Okumu argues.

In a last-ditch attempt to raise funds, Tuskys intends to sell 14 vehicles worth Sh28 million. Most of the assets like trolleys and other equipment that were to raise Sh911 million were sold by landlords to other retailers.

Mr Okumu says that Diamond Trust Bank has agreed to restructure its Sh1.7 billion debts, and that some key landlords are willing to give Tuskys a chance at revival alongside 200 suppliers.

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