The Ugandan government is seeking a Sh24.7 billion ($190.9 million/UGX 697.8 billion) loan from Stanbic Bank to partially finance the buyout of Umeme investors as the firm’s 20-year concession as the main electricity distributor in the country runs out.
Uganda’s Finance Minister Henry Musasizi submitted the loan request to Parliament last week, with the proposal being subsequently placed under the consideration of the National Economy Committee for approval.
The buyout of Umeme investors is expected at the lapse of the concession on March 30, 2025, after which the assets of the company shall be handed back to the Uganda Electricity Distribution Company Limited (UEDCL)- the lessor.
Umeme, which is cross-listed on the Nairobi Securities Exchange (NSE), has been the main electricity distributor in Uganda, accounting for a 95 percent market share.
The company was set up in 2004 and commenced operations in March 2005 as a concessionaire for electricity distribution in Uganda.
Umeme had estimated the buyout amount at Sh37.9 billion (UGX1.07 trillion) as of the end of 2023- computed as the gross accumulated capital investments, but deducting cumulative capital recovery charges from allowed tariffs at the time of the transfer of the assets.
The firm has had exclusive rights to use, maintain, and retire the distribution network assets and related systems and retransfer the assets back to UEDCL.
Umeme notified its investors in 2022 that its concession would run as expected until March 30, 2025, with no renewal expected, confirming the expected buy-out.
“The company has formally received written communication from the Ugandan government, notifying it that the current concession will continue to run until its natural end in March 2025, as stipulated in the concession agreements, after which, there will be no renewal,” the company told shareholders.
Uganda’s National Social Security Fund is Umeme’s largest shareholder, where it holds a stake of 23.4 percent or 379.9 million shares. Other notable shareholders of the company include the International Finance Corporation (IFC) which holds 45.2 million shares or a 2.78 percent stake.
The end of the firm’s concession with Uganda is however seen as material to the company as its operations effectively lapse at the end of next month.
Umeme became the NSE’s first cross-listed firm in December 2012 when it traded between Sh.9 (UGX255.06) and Sh9.50 (UGX269.23).
The company traded at Sh16.65 (UGX471.86) on Friday to continue leading the way in expected investor returns on upcoming 2024 full-year disclosures with a dividend yield of 15.97 percent.
“We issue a hold recommendation on Umeme Limited. The dividend yield will bolster dividend income, albeit for an interim investment run owing to the current concession that is expected to lapse on March 30, 2025,” analysts at AIB-Axys Africa said in a note on Friday.
