Uganda to sue privatised firms over failure to sell shares on USE

Uganda to sue privatised firms over failure to sell shares on USE

By CHARLES KAZOOBA

A number of privatised firms that have failed to list 20 per cent of their stock on the Uganda Securities Exchange risk legal action from the government.

The EastAfrican has learnt that the director of Privatisation Unit has asked the Solicitor General to seek legal redress against Uganda Telecom, National Insurance Corporation Ltd, Uganda Grain Milling Company, Kakira Sugar Works, Tororo Cement Works, Barclays Bank, Lake Victoria Hotel and Apollo Hotel Corporation.

In a March 26 letter, the director requested the Solicitor General to commence necessary legal action.

"Despite several reminders to the said firms, no tangible results have been registered," said the Auditor General's 2006/7 report.

The capital markets were introduced in Uganda under the Capital Markets Statute 1996 and a strategy adopted for privatising parastatals that involved inviting in strategic investors and then listing them on the stock exchange. Currently there are over seven companies listed on the Uganda Securities Exchange.

According to the Auditor General, out of the 15 firms required to sell shares on the stock exchange, only British American Tobacco, Uganda Clays, Baroda Bank, DFCU, New Vision Printing and Publishing Corporation Ltd and Stanbic Bank have met the 20 per cent stock requirement.

The Auditor General said that, as per the Uganda Telecom sale agreement, the process of stock exchange listing is overdue. The firm was supposed to sell 49 per cent of its shares.

"However, available correspondence indicates some preparatory activities are underway as the procurement process of the lead advisor has been conducted," he added.

Data Bank Consortium was reportedly selected as the lead advisor for an initial public offer and the listing of the company on the stock exchange.

Uganda Grain Milling failed to meet the stock exchange requirements as it was heavily indebted. It has been put under receivership by its creditors and as a result the government may have lost its 28.1 per cent shareholding in the company.

The implementation period of selling shares of Lake Victoria Hotels expired in August 2003. Despite several reminders by the Privatisation Unit, correspondence does not indicate any commitment to the exercise by the buyers.

Similarly, Apollo Hotel Corporation has failed to conform to the 20 per cent requirement, whose deal expired by March 2004. The Auditor General claims the firm has not started the process.

Barclays Bank should have listed by October 2003 but despite reminders by the Finance Ministry and the Capital Markets Authority, there have been no signs that the bank is making any preparation for the flotation.

Likewise, Tororo Cement Works did not implement the requirements, which it should have done in 1996.

"There is no evidence that any effort is being made to compel the company to put some shares on the stock exchange," the Auditor General said.

The National Insurance Corporation and Kakira Sugar Works, however, have shown signs of compliance. NIC is already preparing for an initial public offer as per correspondence seen by the Auditor General.

Kakira, whose implementation expired in July 2005, has also shown some level of preparedness "if some stock exchange requirements are fulfilled by the company."

Kakira is supposed to float not less than 10 per cent shares, Tororo Cement 20 per cent, Barclays Bank 25 per cent, Lake Victoria Hotel 10 per cent, Apollo Hotel not less than 20 per cent and National Insurance Corporation 40 per cent.

Kinyara Sugar Works was also supposed to sell 19 per cent shares within two years after it was sold in 2006.

In the process of divesting and restructuring various public enterprises, the Privatisation and Utility Sector Reform Project paid some expenses on behalf of the Finance Ministry on the understanding that those funds would be reimbursed to the Divestiture Account.

As a result, the project owes money to the Consolidated Fund. The Auditor General noted that the government owes the Divestiture Account a total of about Ush55 billion ($33.5 million) while Privatisation and Utility project owes the Treasury Ush10.4 billion ($6.3 million) that leaves a net figure of Ush44.5 billion ($27.2 million) in favour of the Divestiture Account as at June 30, 2003.

Although the privatisation project and the Finance Ministry have indicated their willingness to settle their indebtedness to each other by way of a debt swap the matter has not come to a conclusion because a reconciliation exercise is still ongoing, the Auditor General  said. Uganda Telecom still owes Ush4.2 billion ($2.6 million) to the Divestiture Account.

According to the Bank of Uganda, activity on the stock exchange has been growing because of the increase in the number of products and opportunities on the market such as the January 2007 listing of Stanbic Bank-Uganda. The Bank successfully sold 20 per cent of its shares to the public. It became the ninth equity listed on the bourse and the third financial institution after Bank of Baroda and DFCU Ltd.

 

--
Jean-Louis Kayitenkore
Procurement Consultant
Gsm: +250-08470205
Home: +250-55104140
P.O. Box 3867
Kigali-Rwanda
East Africa
Blog: http://www.cepgl.blogspot.com
Skype ID : Kayisa66