The National Social Security Fund’s Shs34b latest purchase of 100 million additional shares in power company, Umeme, has come under fresh scrutiny following questions raised by top government officials.
The Ministry of Finance says it did not authorise this month’s transaction, which took NSSF’s stake in Umeme to 14.27 per cent, making the workers’ Fund the third largest shareholder after INVESTEC and Umeme Holdings, with a seat on the board of the utility company.
Mr Pius Bigirimana, the Permanent Secretary in the workers’ arent Labour ministry, has also separately written to NSSF board chairman Ivan Kyayonka to “disassociate myself from the purchase”, citing procedural irregularities in tying the deal.
NSSF’s board members, he noted, were divided over viability of the additional investment in Umeme, and the consensus was to do so only after approval by the Solicitor General and Finance minister Maria Kiwanuka, who instead queried the transaction. “The issues raised by the minister are pertinent and clearly reflect the concerns raised by some of the board members,” Mr Bigirimana, who was one of the dissenters at the May 7th meeting, noted.
“I wish to submit that the procurement of the (100 million) shares from Umeme was done in disregard of conditions which were made. I, therefore, wish to disassociate myself from the purchase,” he said.
The management of the Fund, however, said it did nothing wrong and received necessary internal and external approvals, including from the Solicitor General, before investing the Shs34b. “The Fund’s investment in Umeme Limited was executed in conformity with relevant laws, regulations and Fund’s internal policies and procedures,” acting managing director Geraldine Ssali noted.
She cited no-objections by NSSF’s management investments committee, its board, the Solicitor General’s legal counsel and “consultations” with Finance minister Kiwanuka under whose docket the Fund falls. “There’s, therefore, no breach of law or Fund procedure. We believe this to be a good investment in the interest of growing returns for our members,” Ms Ssali noted in an email reply.
In the May 9 legal opinion, Mr Henry Obbo on behalf of the Solicitor General cleared the transaction but subject to NSSF board’s “approval” and “authorisation” by the line minister.
Instead when board chairman Kyayonka brought the matter to Ms Kiwanuka’s attention, first through a telephone call on May 8, the minister raised concerns about Umeme’s debt status, saying its total liabilities to equity ratio stood at 70:30.
A securities transaction adviser, who asked not to be named in order to speak freely, said concerns over high debt are because if a company was to wind up, it would first pay debtors before shareholders such as NSSF. However, cheap debts if well invested in capital, could drive up revenue and profitability, bringing higher dividends for shareholders, the analyst argued. Another source said yesterday that Umeme is set to effect the actual transfer of the additional shares to NSSF tomorrow.
The minister had also raised issue that Umeme’s monopoly position was under consideration following Parliament’s March resolution for government to terminate Umeme’s concession; that the firms profitability appeared derived from efficient revenue collection, and not growth in asset base, yet increased capital investment would determine its future revenue flows.
“In summary, while the Umeme investment appears to be very attractive, I recommend that the board and management get an independent proven expert to review the whole investment proposal including the sustainability of financial projections and the risk concerns …which would affect the viability of NSSF’s long-term objectives,” Ms Kiwanuka said in a May 13 letter copied to chairman Kyayonka and the Fund’s acting MD.
Ms Kiwanuka was not available for comment, but ministry spokesman Jim Mugunga said: “The ministry’s position is contained in the response and guidance the minister gave to NSSF board chairman in her (May 13) correspondence. I am not privy to any other communication after that (authorising the Umeme transaction).
Mr Charles Chapman, the Umeme MD, yesterday said he could not comment on transaction involving NSSF “which is our big shareholder”. NSSF’s first investment in Umeme, which had been opposed on grounds of procedural breaches and unproven conflict of interests of senior officials, turned to earn the workers Shs3 billion in dividends.