Who will take what from Umeme's final buyout?

At the heart of the disagreement is the valuation of Umeme’s investments.

The company claims to have invested $850m (Shs3.09 trillion) in Uganda’s electricity distribution network over the 20-year concession period.

However, the regulator - Electricity Regulatory Authority (ERA) - puts the cumulative investments at $746.79m (Shs2.72 trillion).

ERA says Umeme has already recovered $625.22m (Shs2.27 trillion) through electricity tariffs, leaving a balance of $127.65m (Shs464.1b). 

This is the figure that ERA submitted to both the Ministry of Energy and the Office of the Auditor General.

Umeme, however, insists that its calculations show $850m (Shs3.09 trillion) in total investments, with unrecovered investments amounting to $234m (Shs850.74b) after factoring in what has been recouped through tariffs.

Last week, the Office of the Auditor General - based on findings from auditing firm Grant Thornton - determined that the actual unrecovered investments stood at $118m (Shs429b).

This was the figure forwarded to the Ministry of Finance for payment.

By last Friday, Umeme had received $118m (Shs429b), according to Chairman Patrick Bitature.

However, he noted this is not the final amount the company had expected. 

Umeme now has a 30-day window to contest the figure, during which it will submit an official petition to the Energy Ministry.

If no agreement is reached, the dispute will move to arbitration in London, UK as stipulated in the 2004 concession, both parties signed.

Umeme remains confident that it has a strong case and can secure a higher payout.

Notably, the $118m (Shs429b) excludes an additional $9.7m (Shs35.3b) that Umeme invested in the final weeks of the concession.

What remains uncertain is whether Umeme will delist and liquidate or reinvest the funds into other ventures.

The company’s shareholders will meet on May 22 to decide on the way forward.

If it opts to liquidate, shareholders stand to receive significant payouts from various sources - including buyout proceeds, retained earnings (profits set aside rather than distributed as dividends), and dividends.

Buyout returns

But from the undisputed buyout figure of $118m (Shs429b) - an amount that Bitature says is untaxed - the biggest beneficiary is National Social Security Fund (NSSF). 

As of December 31, 2023, NSSF held a 23.4 percent stake in Umeme, amounting to 379,912,288 shares out of the total 1,623,878,005 shares, which entitles NSSF to $27.6m (Shs100.42b).

Following NSSF is Allan Gray, a South African investment management firm, which holds a 14.82 percent stake (240,654,523 shares).

Based on this, it stands to receive $17.49m (Shs63.6b).

Other key shareholders include Kimberlite Frontier Africa Master Fund, which stands to collect $10.5m (Shs38.2b) from its 8.9 percent stake - equivalent to 144,564,483 shares.

Utilico Emerging Markets, Coronation Global Opportunities Fund, BNY Mellon (Bnymsanv re bnymlb), International Finance Corporation, Kilimanjaro Frontier Africa Fund, Conrad and Hilton Foundation, and Vanderbilt University also hold significant stakes.

Collectively, the 10 investors above own 74.5 percent of Umeme.

As of December 31, 2023, Umeme was 39.2 percent owned by Ugandan shareholders and 60.8 percent by international shareholding - with NSSF, which has a 23.34 percent stake - being the only large shareholder from Uganda.

Beyond this, there are shareholders that fall in the ‘Others’ category, who separately hold 25.5 percent of Umeme. 

These hold an equivalent of 410,094,932 shares and are entitled to a collective payout of $29.8m (Shs108.15b).

Within this category are the minority shareholders, who, according to Umeme’s last financial filings, stand at 5,068 and hold just 0.68 percent of the company.

The real power, however, lies with just 1,475 major shareholders, who control a staggering 99.33 percent of the shareholding.

The contest

But the buyout figure itself remains contested and could change if Umeme convinces government that its total investments in the distribution network were $850m rather than $746.79m.

Even if the dispute isn’t resolved, adding the $9.7m in investments that were excluded from the buyout – if wholly approved - brings the total to $127.7m - the amount the regulator had initially submitted to the Auditor General.

When asked about the cause of this significant discrepancy on Monday, Umeme’s Managing Director, Selestino Babungi, declined to elaborate, saying that while Umeme is a public entity, some details simply cannot be disclosed at this time.

However, sources indicate that Umeme made several investments in the distribution network - such as substations, low-voltage lines, services, and capital projects - that were submitted to ERA for approval but were rejected.

ERA cited various reasons for the rejections, including late submission of some approval requests, poor procurement practices - where Umeme at times allegedly selected the most expensive bidders despite cheaper options being available and that certain investments, such as faulty transformers, were deemed to provide no real consumer value.

“We have received $118m from government. But we still have 30 days post-concession to reconcile any gaps. In our opinion, there are some gaps. Government is saying, ‘if there are gaps, bring them forward – we will negotiate in good faith’. Fortunately, they have the money. It’s not like they need to go back and borrow more,” said Bitature.

If negotiations fail within the 30-day window, Bitature confirmed Umeme will not go to court but will proceed to arbitration.

The company, through its lawyers, Shonubi, Musoke & Co. Advocates, has already issued a notice of intent to dispute the Auditor General’s findings and if unresolved, the case will be presented before an arbitral tribunal.

Bitature insists that “the difference between our figures and government’s can be explained.”

The unexplained blackouts

Meanwhile, Energy Minister Ruth Nankabirwa pinned the recent blackouts on Umeme’s last-minute maintenance spree as it wrapped up operations before handing over to UEDCL.

As Umeme’s concession neared the finish line, it likely scrambled to squeeze in last-minute maintenance, hoping to recover what it could.

ERA says some of the investments were left out of electricity tariffs because they added little to no value to consumers.

Its argument was based on the fact that Umeme was operating more like a monopoly over power distribution and that is why it stepped in to keep consumers from footing the bill for what it sees as ‘questionable spending.’

The expectation 

The expectation is now that Umeme’s final buyout figure could range between $170m and $200m - a development that would thrill shareholders – but for now investors should settle for at least $127.7m, inclusive of the the $9.7m that is under consideration.

The larger the buyout, the higher the payout per share, should the company opt for complete liquidation.

Retained earnings

Umeme’s latest financials indicate that the company has Shs609b in retained earnings - funds reinvested after shareholder payouts.

This figure has remained relatively stable, standing at Shs701.7b in 2022 and Shs641.3b in 2021.

Given that the period between 2024 and 2025 was Umeme’s final concession year, it is unlikely that the figure changed significantly, as the company deliberately reduced investments to minimise risk.

Shareholders are watching this closely, but Umeme’s financials have yet to be released, as it was awaiting the adjusted buyout. 

The financial results are expected not later than May, given that investors will have to scrutinise the numbers before the May 22 Annual General Meeting.

Umeme has also indicated that it is then that it will tell shareholders of its next step.

By adding the undisputed Shs430b buyout to the Shs609b in retained earnings, Umeme’s total financial standing could hit Shs1.039 trillion.

However, the actual shareholder payouts will depend on final accounting adjustments, outstanding obligations, and the board’s strategic decisions.

Dividends

Umeme has consistently offered some of the most attractive dividends on the USE, with an average annual return of 20 percent since 2021.

With all debts settled, the company’s net profit is projected to range between Shs110b and Shs170b.

However, 2023 was an outlier, as net profit dropped to just Shs11.47b due to amortisation and final loan repayments.

Before that, Umeme was highly profitable, posting Shs148.2b in net profits in 2022 and Shs139b in 2021- figures the board often considers when determining dividends.

Crested Capital, a brokerage firm, estimates that Umeme’s 2024 dividend will land between Shs90 and Shs95 per share.

After subtracting the Shs26 interim dividend already distributed in the first half of the year, shareholders can expect a final payout of around Shs70 per share.

However, Crested Capital also warns that first-quarter dividends in 2025 could shrink as the company factors in concession termination and transition costs.

Share trading suspended

Meanwhile, trading of Umeme shares has been suspended for two weeks to protect investors and maintain market transparency amid heightened speculation over the company’s concession expiry and final buyout.

“The suspension shall ... address key concerns regarding price-sensitive information and to mitigate the potential impact of the end of the concession period,” USE said in a Monday notice.

Umeme is also cross-listed on the Nairobi Securities Exchange.

Umeme’s shareholding as of December 31, 2023, and who will share what 

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