Kampala- Prominent businesses in the country might soon run out of business if a decision that could see the use of Shs1.3 trillion taxpayers’ money to bailout companies in distress is not taken in their favour.
Daily Monitor has seen a list of companies owned by prominent businessmen such as Mr Patrick Bitature of Simba Group, Mr Abid Alam of Steel Rolling Mills, and Mr Mukesh Shukla of Shumuk Aluminum Industries.
Others are Mr Sikander Lalani of Roofings Limited, Mr John Sebalamu of Grapes Construction and Mr Hamis Kiggundu of Ham Enterprises who are awaiting a cabinet decision.
Most distressed companies
Steel companies dominate the list in terms of amounts required.
The companies made their way to the government list for a possible bailout after failing to meet their debt obligations on loans they had acquired.
The company with the greatest need is Roofings Limited, which has obligations of Shs201 billion on a loan from the International Finance Corporation (IFC) and Shs8 billion from Diamond Trust Bank.
Already, Steel Rolling Mills has been placed under receivership in order for Standard Chartered Bank to recover a loan of almost Shs60 billion.
The Simba Group also has liabilities in excess of Shs200 billion owed to Crane Bank and other unnamed banks.
Grapes Construction, which owns Freedom City Mall, has debt obligations of Shs100 billion owed to Stanbic Bank.
Several companies in Kikuubo Shopping Centre such as Senana Enterprises, Ssebaggala and Sons are also on the list. Hamis Kiggundu known for his lavish lifestyle is also on the list.
Daily Monitor understands that talks with the government have not yet been concluded with some, especially within the Ministry of Finance and Bank of Uganda (BoU) against the move to bailout the said companies. The companies blame the weak economy, depreciating Shilling, slow recovery of South Sudan and high interest rates for their woes.
This newspaper also understands that there is frustration among the steel manufacturers because they increased their production but have been unable to supply products to some of the largest infrastructure projects such as Karuma Power Dam.
Last week on Wednesday, Finance minister, Mr Matia Kasaija, had confirmed that Cabinet would have reached a decision that would be announced shortly.
However, by press time yesterday, no decision had been made.
Talking to Daily Monitor on condition of anonymity, a source privy to the talks revealed that “there is concern that bailing out companies without correcting the economic situation in the country will not resolve the problem.”
“The economy is not growing fast enough to generate activity for these companies to perform at full capacity. A bailout will not deal with the core problem. That is the argument being fronted by several government technocrats against the bailout,” the source said.
The oil and gas situation
In the oil and gas sector, several local companies, mostly in the logistics segment, have debt obligations of Shs70 billion. The companies are almost out of business because of the limited activity in the sector.
“Instead of bailing out the oil and gas companies, government should issue production licences so that the companies get back to business,” the source noted.
More borrowers have failed to meet their debt obligations for at least three months as a slowed economy and high interest rates continue to kick in.
When borrowers fail to meet their loan obligations over this period, it is referred to as Non-Performing Loans (NPL).
According to the Uganda Bankers Association (UBA), in the first three months of 2016, the level of NPLs rose to 6.87 per cent from 5.29 per cent in the three months to December 2015. The NPL levels for the first three months of 2016 are the highest for any quarter since December 2003 according to Bank of Uganda (BoU) statistics.
This was revealed by Mr Fabian Kasi, the Centenary Bank managing director and chairman UBA, during a stakeholder meeting organised by UBA and the business community recently. “By March this year, the industry non-performing loans had increased to 6.87 per cent. However, this is likely to rise to 7 per cent by end June,” he said.
At the end of December 2015, NPLs were valued at Shs575 billion of the total loans.
In March 2016, the exact figure had not been released but estimates from various industry sources point to more than Shs650 billion.
Mr Kasi explained that if businesses get stressed, the banks get stressed even more. “If loans are not performing you are supposed to make provisions. And as banks make these provisions, it means they eat up the capital for the banks. As capital reduces, it means the liquidity also reduces and banks get stressed. This forces them to borrow expensively which again stresses the banks.”
In the list of distressed companies, most of the money is owed to Crane Bank and Standard Chartered Bank. In 2015, Crane Bank suffered a loss of Shs3 billion due to expenditure to cover for bad debt. Standard Chartered Bank saw its profit drop by 88 per cent due to a surge in expenses on bad loans.
Mr Everisto Kayondo, the chairman Kampala Traders Association (Kacita) blames failure of the business community to pay back the loans on the high interest rates.
“Many businesses borrowed loans under a flexible exchange rate and when the Shilling depreciated, the interest rates increased implying that the businesses had to pay back more.
Banking sector healthy
“We don’t measure health of the banking sector by way of NPLs. It is not a singular indicator of how the sector is performing. Whenever a loan non-performs, the capital of the bank gets charged, so what we look at is; are the banks well capitalised even with a hike in NPLs? A bank registering an increase in NPLs does not mean it is unsafe or unsound as long as shareholders have enough retained earnings to maintain sufficient levels of capital.
So yes, the overall banking sector is healthy because banks are adequately capitalised,” Ms Christine Alupo, director communications BoU, said yesterday.