Business
Uganda electricity distributor, Umeme, launches regional IPO
(The East African) – Uganda’s electricity distributor, Umeme, will launch the country’s biggest initial public offer (IPO) on Monday, October 15, hoping to attract investors across the region.
The US$68.4 million offer will see Actis, a private equity firm sell a 38.3 percent stake in Umeme to the general public. Actis owns 100 percent of the electricity distributor.
Umeme’s shares will each go for US$0.11 with the offer closing on November 7. Ugandans, Kenyans and Rwandan investors, as well as international investors are expected to take part in the offer.
However, it is still unclear whether Tanzanians will be allowed to take part in the offer, since the country restricts its nationals from participating in IPOs because of foreign exchange restrictions.
The offer values Umeme at US$178 million, making it the second largest listed company at the Uganda Securities Exchange after Stanbic Uganda, which was valued at US$398 million at the end of last week.
Umeme plans to use the funds raised from the IPO to reduce its interest-bearing debt and be able to secure better financing options over the next few years, to help finance its capital investment programme.
It will be the first IPO where a Ugandan company plans to list shares for trading in both Kenya and Uganda, bucking a trend where Kenyan companies have usually cross listed at the Uganda Securities Exchange.
“We are pleased with the approval received from the Uganda Capital Markets Authority, which helps Umeme achieve its goal of diversifying its ownership, while providing the Uganda and wider East African Community and international investors an opportunity to own a stake in Umeme,” said Charles Chapman, Umeme managing director, in a press statement.
Umeme said it will list at the Nairobi Securities Exchange in Kenya, by introduction, where a company does not raise cash when its shares begin trading at the stock market. However, Umeme backtracked on plans to offer the IPO simultaneously in Uganda and Kenya.
The company, though, did not say why it opted to list by introduction at the Nairobi Securities Exchange as opposed to offering the IPO in Kenya.
Officials at Kenya’s capital market authorities said they will meet with Umeme’s officials next week to finalize the approval process.
“We are supportive of Umeme’s cross-listing at the Nairobi Securities Exchange but one or two things need to be checked before we approve the process,” said Kung’u Gatabaki, Chairman of Kenya’s Capital Market Authority.
By cross listing at the Nairobi Securities Exchange, Umeme hopes to attract Kenyan investors who have an appetite for share offers in the region.
East African retail customers have been offered 20 percent of the shares, qualified institutional investors in the East African Community 25 percent, international investors 46 percent and Umeme employees and directors 9 percent of the 622,378,000 shares on offer.
Umeme hopes that by listing at the Nairobi Securities Exchange, which is East Africa’s largest securities exchange, it shares will be more actively traded. Kenyans are expected to take part in the offer following their appetite to take part in the other offers in the region.
In 2006, Kenyans actively participated in the Stanbic (Uganda) bank IPO. But one of the biggest challenges for the Kenyans has been trading in the stock at the Uganda Securities Exchange, where the buyers and sellers are not as many as at the Nairobi Securities Exchange.
However, their interest in some Tanzanian IPOs has been restricted by the capital market regulations in the country which limit the number of foreign investors.
With Umeme cross listing at the Nairobi Securities Exchange, investors will also have the option of picking between the Ugandan electricity distributor and Kenya Power.
The shares of electricity distributors are considered a good bet by many analysts because of their ability to withstand tough economic climates by passing on their increased costs of operations to consumers.
“A lot of utilities have pricing power because they are allowed to set the prices of their services,” said Johnson Nderi, a research analyst with Suntra Investment Bank.
He said the listing of Umeme at the Nairobi Securities Exchange will “be very interesting” with the option of investors to pick between Kenya Power and Umeme.
Kenya Power last week announced it will increase the fuel cost and forex components of electricity charges beginning this month.
Umeme recently released its 2011 annual report, which reflected a 45 percent growth in Earnings Before Interest Taxation Depreciation & Amortization (EBITDA) before exchange rate differences of Ush103.6 billion (US$40.4 million), up from Ush71.2 billion (US$27.8 million) in 2010.
Profits before tax grew from Ush6.4 billion (US$2.49 million) in 2010 to Ush44.6 billion (US$17.4 million) in 2011. Umeme has had its fair share of challenges incurring losses due to both power interruptions as a result of illegal power use and repairing damaged transformers.
In 2011 alone, the power distributor lost 28 percent of its annual revenue to power theft such as meter tampering, meter bypass, meter miss-read and illegal connections.
Electricity distributors in the region such as Umeme, Tanesco and Kenya Power have been transforming their businesses to focus on certain lines.
Kenya has split the power sector where different companies perform specific roles in the electricity supply chain. Kengen, which is listed at the Nairobi Securities Exchange, generates power either hydro or wind power or geothermal.