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The East African : January 13th 2014
MONEY AND EQUITY MARKETS JANUARY 11-17,2014 UGANDA’S SKEWED PRIVATISATION Public may not benefit from seven divested By BENON HERBERT OLUKA Special Correspondent T he general public in Uganda has been locked out of the sale of and probably eventual ownership of at least seven divested public companies for yet another year. Almost all firms whose percent- age of government stake was to be sold off to the public are yet to pass a “compliance test” before floating shares on the Uganda Securities Exchange. Uganda Telecom, Kakira Sugar, Kinyara Sugar, Tororo Cement Works, Barclays Bank, Apollo Hotel (proprietors of the Sheraton Kampala Hotel) and Laico Lake Victoria Hotel were supposed to have listed on the USE more than 10 years ago, but have over the years found one reason or another to postpone an initial public offering (IPO). In an unusual turn of events, the government, which in 2008 was threatening to sue the companies for breach of contract, has changed tack and in one instance even went ahead to sell at a discount, the 19 per cent stake reserved for the public to the majority, private investor. Jim Mugunga, Ministry of Fi- nance publicist said none of the companies was likely to list on the USE this year, or anytime in the foreseeable future, due to inconsistent financial performances. “The Privatisation Unit, as a matter of policy, will only bring to the market or promote to the USE companies with a healthier financial/operational [status]. The idea is to encourage Ugandans to invest in proven success stories,” explained Mr Mugunga. When Uganda started the proc- ess of offloading 139 formerly state-owned enterprises to the private sector in 1993, the government planned to sell part of its stake in at least 15 companies to the public on the stock exchange as a way of spreading the economic benefits of the process to ordinary citizens. Business watch KCB Rwanda to cut down bad debt, triple customer base KCB Rwanda plans to cut down bad debt in companies soon Seven fi≥ms supposed to have listed on the USE mo≥e than 10 yea≥s ago have ove≥ the yea≥s found one ≥eason o≥ anothe≥ to postpone an IPO Public companies that have so far fulfilled that obligation include British American Tobacco-Uganda, Bank of Baroda, Uganda Clays, DFCU Bank, New Vision Printing and Publishing Corporation (now Vision Group), Stanbic Bank and National Insurance Corporation. For the others, the process of share floatation on the USE is long overdue. They include Uganda Telecom Ltd, which was supposed to have floated 49 per cent of its shares by now, Kakira Sugar Ltd (not less than 10 per cent shares), Kinyara Sugar (19 per cent shares), Tororo Cement Works (20 per cent by 1996), Barclays Bank (25 per cent by 2003), Apollo Hotel, the proprietors of the Sheraton Kampala Hotel (not less than 20 per cent), and Laico Lake Victoria Hotel (10 per cent by 2003). The last of the lot, Uganda Grain Milling Company, was supposed to have floated the nearly 30 per cent stake owned by the government. However, it was placed under receivership, leading to an automatic forfeit of its shareholding by the government. Mr Mugunga said Uganda Tele- com Ltd (UTL) is yet to sufficiently improve its financial performance to meet the minimum financial performance benchmarks set by the USE before it can be listed. Mr Mugunga said the Privati- sation Unit had formally asked the Solicitor-General to follow up Tororo Cement Works and Barclays Bank after the two companies reneged on earlier promises to list on the USE. According to Mr Mugunga, Toro- ro Cement Works was supposed to list after completing the rehabilitation of the company’s premises in 1996 but it has hitherto not happened. Barclays Bank, on the other hand, bought Nile Bank in 2006, leading to a period of operational turbulence as the two institutional formalised their merger. One of the most controversial its Rwanda market as it seeks to triple its customer base to 75,000 this year, officials said. The Bank’s non-performing loans rose to about nine per cent of net credit at the end of September, making the loans almost double to Rwf4.2 billion ($6 million) from Rwf2.4 billion ($3.4million) the previous year. The bank is struggling to meet the 5 per cent limit set by the central bank. Standard Chartered bank THE NUMBERS 19 pe≥ cent Amount of shares the govt held in Kinyara Sugar Works Ltd $1.25 The amount each share was sold at instead of $1.5, making a loss of $1,817,878 cases to date involves Kinyara Sugar Works Ltd (KSL), where the government offloaded the 19 per cent stake that it was expected to list on the USE to the majority shareholder, RAI Holdings, “to help consolidate investments in the company and grow the business.” The Auditor-General says in his latest audit report that the business valuation report of Kinyara Sugar Works Ltd issued by Deloitte and Touché, the audit firm contracted to advice government on the value of its 19 per cent shares, says that the stake sold to RAI International was undervalued. “Each share was sold at $1.25 in- stead of $1.5, making a loss of $0.25 per share which translates into $1,817,878 (Ush4,350,745,596) at an exchange rate of $1:Ush2,393.31, the rate at the date of valuation,” says the Auditor-General’s report. However, according to the Lead- er of Opposition in Parliament, Nathan Nandala Mafabi, the government later went against the decision to sell 19 per cent of its stake to the public when President Yoweri Museveni ordered the Finance Ministry to offer those shares as well to RAI International. That action prompted Mr Mafa- bi, a member of the opposition Forum for Democratic Change (FDC) party, to describe the action as a symptom of the “haphazard and unprincipled” manner of disposal of public enterprises. “There are two wrongs in this. The first, is that when the president gives this directive, he goes against the privatisation objective A rosy painting of Uganda’s economic development Umeme share listing on the USE. Picture: Morgan Mbabazi. of increasing ownership among Ugandans which, by the way, is premised on the fact that involving a wider public in privatisation creates the basis for wider economic benefits and raises the acceptance of the implemented measures,” said the Budadiri West MP in a recent statement. “The second wrong is that given that sugar is a desirable good and investment in sugar, a viable business the world over, it does not make sense to give 70 per cent shares to the private investor. Government or the public should have had majority shares so that they can benefit from this lucrative entity.” The other sugar producer that was expected to list on the USE, Kakira Sugar Ltd, recently issued a $30 million bond to mobilise resources, rather than undertake the listing on the stock exchange that is overdue by nearly nine years. Asked why the company cir- cumvented its share floatation obligation by issuing a bond, Farhan Nakhooda, the projects director at Kakira Sugar Ltd, said the company had not yet met all the guidelines from the USE and the Capital Markets Authority but needed to embark on a major expansion of its factory and co-generation facilities. That process started in 2011 with loan financing from local commercial banks and the East African Development Bank, and, according to Mr Nakhooda, is now in the final stages of completion. shares remain steady Kenya’s Standard Chartered Bank share price remained resilient even as the mother bank suffered a blow following news of the pending departure of its finance director. Richard Meddings’ announcement of a June quit, saw the shares at the London Stock Exchange last week plunge 3 per cent to the lowest in more than a year. The shares traded at Ksh300 ($3.50) at the Nairobi bourse. Analysts in Kenya said the price was still good for the company. StanChart warned in December that its 10-year record of earnings growth would likely end in 2013. Mayfair Insurance pays out $23.5m to Nakumatt Holdings 45 Mayfair Insurance MD Tushar Shah (left) hands over a cheque to Nakumatt MD Atul Shah. Picture: File Nakumatt Holdings last week received the second payout from Mayfair Insurance Company to cover losses estimated at over Ksh2 billion ($23.5 million), suffered following a terrorist attack at their Westgate Mall branch, Nairobi last September. The Ksh611,155,695 ($7.2 million) comes three months after the first settlement worth Ksh400 million ($4.7 million) was made and at a time the retail chain is warming up for a buy-out of three Tanzanian outlets from the South African retail chain Shoprite in the next four months. Bank of Kigali shares rise in second week of trading Bank of Kigali and Bralirwa share prices rose slightly last week compared with the first session in the new year, as the market struggles to come out of the holiday season. BK and Bralirwa shares traded at Rwf 245 (US Cents 36) and Rwf 840 ($1.20) respectively from Rwf 240 (US Cents 35) and Rwf 839 ($1.2) on January 2. The RSE share index (RSI) rose to 234.34 from 232.42 over the same period. KCB and NMG counters have had outstanding bids but no offers since the beginning of the year.
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