NSSF increases Umeme stake to 23% as Actis unplugs from power distributor

NSSF MD Richard Byarugaba and board chairman Patrick Kaberenge.
NSSF MD Richard Byarugaba and board chairman Patrick Kaberenge.

The National Social Security Fund will become the majority shareholder in electricity distributor Umeme (UMEM) after agreeing to buy 121.82 million shares from Umeme Holdings Limited for Shs59.4 billion.

NSSF will pay Shs488 per share in the private placement, representing a 7% discount on the share price on 4 November when it was suspended from trading on the Uganda Securities Exchange, its primary listing, and on the Nairobi Securities Exchange.

The transaction will see NSSF replace Actis – which fully owns Umeme Holdings – as the largest shareholder in Umeme with 23%. Stanbic Bank Uganda (SBU) and SBG Securities Limited, the book runners in charge of the private placement, are expected to announce the results of the book building by November 10 to reveal the other buyers of Actis’ stake.

A statement released by NSSF today says that “Umeme Limited is one of the Fund’s best performing equity investments, and one of the best performing listed companies in East Africa.” NSSF has earned Shs22.27 billion in dividends from its holding in the utility since 2012, and has seen its investment grow to Shs132.3 billion from Shs81.7 billion.

Actis plans to offload 232.21 million shares equivalent to 14.3% of the issued ordinary shares of Umeme Limited. The transaction is expected to close by November 17.

The deal, which is subject to regulatory approval, is part of plans by Actis, the emerging market investor behind Umeme Holdings Limited, to exit the Ugandan power distributor roughly halfway through its concession.

Other major institutional investors in Umeme as of the end of 2015 included: Investec Funds (10.78%), Kimberlite Frontier Africa Naster Fund (5.14%), SCB Mauritius Re All Gray Africa Equity (Rand) Fund (4.48%), The Africa Emerging Markets Limited (4.33%), and the International Finance Corporation (2.78%).

In the half-year financial results to June 2016, Umeme’s revenue grew by 20.3% to Shs658.7 billion compared to the same period in 2015 with gross profit increasing by 5.9% to Shs212.4 billion.

EBITDA grew 17.2% to Shs132.7bn but was flat at $39.2m because of pending investments, the company announced.

Net profit during the period fell to Shs54.5bn from Shs67.6bn on higher financing costs and a normalized tax rate following the reversal of unrealised foreign currency losses.

Umeme entered a 20-year concession arrangement with the Government of Uganda effective March 1, 2005 to run the country’s distribution network using assets of the Uganda Electricity Distribution Company Limited.

The concession has, however, been fraught with difficulties, including public queries over the amount of new investment in the electricity grid, the level of electricity losses, and the status of an escrow account meant to provide a financial buffer to Umeme in case of default by the Government of Uganda.

In March 2014 Parliament passed a resolution to cancel Umeme’s concession over concerns about the value of the agreement and revelations that its signing might have been done outside constitutional provisions. The resolution was not binding to the government and has not been implemented but it represents a risk to investors that might have informed Actis’s decision.

Umeme’s agreement with GoU provides for termination of the agreement by either party with a buy-out amount payable to it in such a scenario. By the end of 2015 the buy-out amount had risen from $249.5m the previous year to $315.7m, according to the company’s financial report, inclusive of $152.7m in investments that were yet to be approved by the Electricity Regulatory Authority.