What Happens to Umeme Shareholders if the Contract is Terminated?

A umeme official at work

umemeThe National Social Security Fund (NSSF) owns about 8percent shares worth 48billion Uganda Shillings in power distributor Umeme. NSSF is one of the shareholders in Umeme that have not been moved by the last month’s decision by MPs to have the power distributors’ concession agreement cancelled over inefficiency and failure to reduce energy losses among others.

Since then, the share price has ramained stable at between 370 Uganda Shillings and 365 Uganda Shillings. About 500m walk from the Umeme Head Office on Rwenzori House is the Uganda Securities Exchange (USE), where its shares are traded publically.
Umeme is one of the most traded companies on the USE, making it darling for the stock exchange. When Umeme listed back in November 2012, the trading floor was temporally shifted to the Kampala Sheraton Hotel.

The investors such as NSSF are confident. Notably, NSSF will earn about 3.7bn Shillings in June 2014 when profits earned from Umeme’s performance are shared among shareholders. It has been noted that if Umeme’s contract were to be terminated, they would have to be paid at least 105percent of their investment at the time.

Henry Rugamba the Head of Communications Umeme told URN in an email that “you do realise the buyout of Umeme would be shared by the shareholders if it were to happen so technically shareholders win either way short term gain.”
The market regulator, The Capital Markets Authority (CMA) says it wouldn’t just sit and watch the share price plunge – if it did. A share price drop due to negative news would mean the value of shares that investors hold in a company would slump. Charles Nsamba, the Acting Communications and Investor Education Manager at CMA notes that the authority power to instruct the USE to halt trading of particular shares if there is a run on the price.

Most of the brokers who buy and sale shares are also upbeat, showing no worrying signs of the Umeme concession being terminated. Umeme remains one of the most active counters on the stock exchange, just after Stanbic Bank. Shareholders, who bought Umeme shares in November 2012, have seen their investment grow by 33percent; this excludes the amount they have received as profit sharing payment.

CMA indicates that before Umeme was granted the permission to list, it disclosed to the public 17 risk factors to buying into Umeme. One of them included the adhoc-Committee committee report that was at committee level at that time. This was further backed up by a note that reads “The Government has reiterated its commitment to the private sector and to the sanctity of contracts”
According to Nsamba, there was enough disclosure for investors to make an informed decision.

In Uganda, the case of contract termination for any listed company is unprecedented. The CMA and USE have never had to deal with such. The most they have dealt with is the share price falling during to actual market conditions like low profitability, sluggish growth and weak return on investment for any market.

However, if any company were to be delisted, the CMA says it runs an investor Compensation Fund, which would be used to help investors recover their money. The size of the fund as of 30th June 2013 is 715million Uganda Shillings, a rather miniscule figure.

About Post Author

1 thought on “What Happens to Umeme Shareholders if the Contract is Terminated?

  1. Whoever invested in UMEME did so on his or her own . They were aware of the risks including the fact that the concession was given fraudulently without the participation of relevant public institutions mandated by the constitution and the law. The Attorney General has said that much in the instance of IGG’s investigation of Mr Byaruhanga formerly of NSSF. So if UMEME was to lose the concession which it illegally holds those who invested in it stand to lose in the same way UMEME will. No body can be compensated for something one holds or owns illegally. That’s the law , period!!!!!!!!

Comments are closed.