The share price of Uganda’s power distributor Umeme Ltd has remained flat for the past two months because of speculation on the renewal of the company’s concession agreement with the government.
The shares, which are listed on both the Kampala Stock Exchange and the Nairobi Securities Exchange, have been trading at $0.13 and $0.15, respectively.
“The latest share price decline, which has seen the company’s stock price fall to about Ush400 ($0.11), is mainly driven by fears of non-renewal of Umeme Ltd’s concession agreement circulating among some offshore portfolio investors,” said Simon Mwebaze, general manager at UAP-Old Mutual Financial Services Uganda Ltd, a stockbrokerage and asset management firm.
But other analysts say the fears of the offshore investors on the contract are unfounded.
“Umeme remains a dominant power distributor in Uganda while the political risk of losing its concession looks minimal,” Kenneth Kitariko, chief executive officer of African Alliance Uganda, a stockbrokerage and asset management firm.
The uncertainty on the contract, which expires in 2025, has persisted since the company agreed with the government on a new tariff structure, prompting the exit of offshore investors from mid this year.
The implications of the new complex formula are yet to be fully understood by investors.
The company’s shares hit a record high of Ush640 ($0.18) in 2015, but have posted a record low of Ush399 ($0.1) in recent trading sessions, compared with an average stock price of Ush490 ($0.13), according to financial market data.
Umeme’s trading price at the NSE has held steady at Ksh15 ($0.15) in recent months, on account of dull trading patterns. Umeme listed on the Kampala Stock Exchange five years ago at an issue price of Ush270 ($0.07).
Although the price differential across the two markets provides an opportunity for arbitrage — buying from one market and selling in another — for savvy investors, analysts say that system weakness prevent this.
“Crosslistings serve very little purpose in our stockmarkets, because of internal challenges caused by differences in settlement systems and trading rules,” said Joseph Kibuuka, equity financing manager at Crested Capital Ltd.
Private equity funds
Mr Kitariko said that Africa is struggling to attract new listings from the energy sector, which is benefiting from new funding sources like private equity funds and crowdfunding. This limits the capacity of offshore investors to exit energy counters when their investment horizons close.
Mr Mwebaze gave the Africa Infrastructure Investment Managers (AIIM) fund, which targets small power projects in East Africa, as an example. It injects equity capital in independent power producers and exits through private placements and not the stockmarket.
“Its transactions are concluded faster than those done on the stockmarket,” he said.
Umeme’s market capitalisation at the USE is currently estimated at Ush649.7 billion ($178 million) with 1.6 billion shares issued. Institutional investors own 72 per cent of the company’s shares while retail investors hold 28 per cent.