In limbo: Umeme investors trapped in buyout dispute
Umeme says that unrecovered investments are higher than what the regulator submitted to the Auditor General, which makes the buyout amount much higher than was paid. Photo / File
What you need to know:
- Investors, who had earlier expected a higher buyout, will have to wait for government and Umeme to reach an agreement.
- If the dispute is not resolved within 30 days, the wait might be longer, given that it will go into arbitration in London, UK
It was meant to be a graceful exit - Uganda’s largest power distributor unplugging from the national grid after two decades, with shareholders walking away with tidy dividends.
Instead, Umeme’s departure from the Uganda Securities Exchange (USE) is starting to feel less like a farewell party and more like being stranded at an airport.
The flight is delayed, there are no updates, and the coffee machine is broken.
After an initial two-week Umeme counter suspension from trading on March 31, USE extended the suspension for 30 days.
For investors, that means more waiting - and more silence. Their hope? A clean payout. The reality? A stalemate.
At the heart of the deadlock is a dispute over how much government owes Umeme under the buyout terms. Umeme pegs the figure at $234m (Shs853b) - for unrecovered investments in the distribution network.
Electricity Regulatory Authority (ERA) estimates Umeme has invested $746.8m (Shs2.7 trillion) over the years, but Umeme places the investment at $850m, according to Managing Director Selestino Babungi.
The difference is huge – it’s not just loose change - and Umeme insists it has a defensible balance, having recovered part of the investment through tariffs over the years.
But until the books align, shareholders remain in the dark. A part of the buyout - $118m - has already been paid to Umeme.
There is also a $9.7m payout for works in progress that wasn’t added to the figure government has already paid out.
Thus, if it is added to the already paid amount, the final buyout on government books rises to $127. 7m.
But Umeme thinks the figure is higher and on Monday, it formally declared a dispute with government over the buyout amount, a disagreement that Umeme chairman Patrick Bitature had hinted on on March 31 at the handover to Uganda Electricity Distribution Company Limited.
At the time, Bitature said the company still had 30 days post-concession to reconcile gaps, noting that government had asked “if there are gaps, bring them forward - we will negotiate in good faith”.
At the heart of the disagreement is a fundamental contention; investments Umeme submitted to ERA for approval, but were rejected, because some were poorly procured, others failed to deliver value to end users, and in certain cases, Umeme delayed to submit proposals, making it difficult for ERA to review and approve them in time.
Without the approval, Umeme couldn’t recover those investments through end-user tariffs - an issue now central to the dispute.
Umeme, lawyers, Shonubi, Musoke & Co. Advocates, on Monday said the Umeme board had resolved to formally dispute the buyout amount in accordance with terms of the Support Agreement signed between Umeme and government.
The dispute is expected to be resolved within 30 days, failure of which “the matter shall be referred to arbitration in London”.
Meanwhile, as this played out, the public had, before USE announced an extension of the suspension of the Umeme counter, investors had been asked to exercise caution when trading in its shares.
Thus, the move by USE sought to calm speculation, just like it had happened prior to the first suspension at the close of March, in which trading data showed that 313,100 Umeme shares had been offered for sale between March 27 and 28.
The offer largely outnumbered bids of 5,000 in the two days, a clear sign of panic among minority shareholders rushing to liquidate their shares.
The Umeme stock has remained relatively stable since January 13, when it dipped slightly to Shs414.
Thus, to calm the panic, USE suspended trading on the Umeme counter on March 31 for two weeks to protect investors.
USE had hoped that Umeme and government could have concluded on the buyout to address price-sensitive concerns.
However, as things look , there has been no settlement, requiring USE to extend the suspension for 30 days - meaning that trading will resume on May 14.
“The extension of the suspension is intended to allow for good faith settlement of the dispute between [Umeme and government,” USE said in a public notice.
Umeme is meanwhile expected to release its financial results and submit a progress report detailing its current state of affairs and any intended actions during the 30 days.
So far, Umeme has not released its financials because its management had earlier noted that it needed to have clarity on the buyout amount.
Whether the matter goes to arbitration or is resolved before then, USE believes that by that point, all material information will have entered the public domain.
USE has also asked Umeme to ensure thorough disclosure of information to investors and potential investors promptly.
Paul Bwiso, the USE chief executive officer, said they had initiated an involuntary suspension of Umeme’s counter because there was information circulating among select individuals and not the general public, which was potentially influencing the stock’s pricing.
“There were behind-the-scenes discussions moving faster than public disclosure, and we needed to understand the full picture, especially around the buyout clause. The first suspension helped us unpack that. The current extension is meant to give both Umeme and government space to resolve the dispute,” he said.
The suspension, he noted, would, therefore, allow investors to have timely and accurate information that is not prejudiced.
Information about Umeme’s buyout has, until recently, been circulating more actively in closed-door circles - within government ministries, Parliament, and other corridors of power - rather than through public disclosures.
That kind of uneven flow of material information has left investors in the cold.
Whereas it seemed that Umeme had known about the figure that government would pay ahead of the Auditor General report, there were no updates until the matter started playing out in the press.
Until the final days of the concession handover, investors had expected a significant buyout amount based on Umeme’s past communication.
But when government remitted a different and considerably lower amount, it sent ripples through the market, thus affecting investor expectations.
The entire pull and shovel strikes at the very foundation of the concession itself - an arrangement built on the assurance that investments made would be returned fairly and transparently.
The threat
For over a decade, Umeme had dominated trading on the USE with over 50 percent turnover. It is a blue chip company. Thus the current uncertainty threatens that dominance and poses a real threat to USE itself, which had for a long time leaned on Umeme as a pillar of liquidity and investor confidence. Adding to the pressure, Umeme has delayed releasing its financials, citing the unresolved buyout amount. It says it intends to add the buyout figure to its financials before meeting shareholders next month.
The company says finalizing its books hinges on clarity around this figure, which directly affects its financial statements.
This could, however, come way ahead of capital markets regulations, which require listed companies to publish their financials by April 30. Unless otherwise, it will be a big relief for shareholders if government and Umeme can settle the dispute over the final buyout. Umeme expects to hold its annual general meeting on May 22.
