Prime
USE self-listing to be decided by how govt handles Umeme exit
Mr Paul Bwiso
What you need to know:
- USE says it has already developed a road map to self-list as a way of improving value and attractiveness to foreign investors
The government’s decision not to renew Umeme’s concession has made it difficult for the Uganda Securities Exchange USE to list as a way of improving its visibility.
Speaking in an interview in Kampala, Mr Paul Bwiso, the USE chief executive officer, said Umeme remains the biggest trading counter on the stock exchange, which explains its importance in the exchange’s plan to self-list as a way of attracting more trading activity and creating more liquidity.
“The decision in 2025 of how Umeme is handled will help us make a decision. If the concession had been renewed, because Umeme is our biggest trading counter, we would definitely have listed because it’s about revenue and liquidity in the market,” he said.
Self-listing can make the exchange more attractive to institutional investors, including mutual funds, pension funds, and other financial institutions, who may prefer to invest in publicly traded entities.
In five consecutive quarters to the 2023 third quarter, Umeme has had the highest equity turnover at USE, according to data from the Capital Markets Authority.
The Umeme counter received trading worth Shs6.745b in the quarter ending September 2023, while its closest competitor – dfcu – traded shares worth Shs3.84b.
The exchange needs to have highly active counters to reassure investors of its ability to repay invested money through trading.
The USE has a number of less active counters given that it is largely dominated by institutional investors who hold onto stocks.
As a result, Umeme’s exit from the market is likely to impact on USE’s activity.
Government has already indicated it will not renew Umeme’s 20-year concession when it expires in March 2025.
The power distributor’s operations and assets will revert to government, which has already indicated that it is in the process of creating a state company to replace Uganda.
Shareholders are expected to receive compensation for their shares, which will be equal to the net value of the company’s assets plus a 5 percent premium in a payout at the end of the concession.
As of June 2023, Umeme’s value stood at Shs933b and a government audit will later determine the final payout amount, before it eventually exits the exchange.
However, the listing of Airtel will re-energise USE, whose market capitalisation now stands at Shs11.8 trillion from Shs6.8 trillion, due to the addition of the telecom’s capitalization of Shs4 trillion.
Mr Bwiso said the plan to self-list had already been developed and USE had now started on the roadmap to listing.
“We believe at some point in 2025 we should be listing once these transactions [Airtel public offering deal and Umeme’s exit] are complete,” he said.
Commodities exchange
USE, whose self-listing still faces capital inadequacy, is now attempting to generate sufficient revenue to attract investors by creating new capital plans such as a commodities market.
The plan is expected to increase liquidity on the exchange and enable it to diversify its product offerings. However, Mr Bwiso said that there is need to mitigate risks, given that commodities are capital intensive yet risky.
This, he said, requires the exchange to onboard standard warehouses as well as identify warehousing gaps, if any. The exchange plans to trade $100m worth of grain and will form two joint ventures with two significant, yet unnamed grain industry partners that have high-quality grain.
