Mauritius Telecom has emerged as the preferred company to buy a majority stake in troubled Uganda Telecom Ltd, according to a leaked Cabinet memo.
The seven-page memo dated last month, says that out of the six firms that put in bids to buy majority stake in UTL, the Mauritian telco was cleared by the Financial Intelligence Authority (FIA) “as the only credible and financially stable company among the evaluated companies.”
The Minister of Finance tabled the memo to his colleagues, showing that Mauritius Telecom offered $45 million “as consideration for assets,” capital investment of $100 million over a period of three years and a 69-31 per cent shareholding structure between itself and the government.
“According to the FIA report, the best option available is Mauritius Telecom, which has offered $45 million,” the memo reads.
The tone of the memo gives the sense that only formalities remain for the Mauritian telco to take over UTL.
“Colleagues, in light of where we are, and with a view to quickly conclude this matter, we propose as follows: The administrator awards and finalises with Mauritius Telecom as the only credible potential partner with the government as recommended by the Financial Intelligence Authority,” the minister writes, stating this position as the first option in the sale of the majority stake.
Offer below market value
However, according to the memo, a copy of which The EastAfrican has obtained, the UTL administrator Bemanya Twebaze was concerned that Mauritius Telecom’s offer is below the assessed market value of UTL, which is currently set at $80 million.
The offer is way below the $70 million made for consideration of assets, $285 million capital investment over a three-year period and a shareholding split of 62-38 per cent, tabled by Hamilton Telecom.
“Seeing as the administrator’s duty is to get the best return for the creditors, he proposes to select the best three potential partners and engage them further with a view to revising their offer upwards. A final offer will be made to a partner with the highest offer,” the memo says.
This position is premised on the Insolvency Act, which gives power to the administrator to get the highest amount of money for the creditors as part of his duty in returning the company to better financial health.
However, it is understood that in an April 30 Cabinet meeting, President Yoweri Museveni was rooting for Safaricom, which had shown interest in partnering with another bidder, Afrinet Communications Ltd, to buy the Ugandan telco.
But, based on the latest Cabinet update on the process of sourcing a strategic partner to invest in UTL, the Kenyan telecom seems to have “since withdrawn its interest.”
As a result of Safaricom’s withdrawal, Afrinet Communications Ltd, which had offered the second best purchase price of $67 million, also confirmed to Finance Minister Matia Kasaija that they had withdrawn their participation.
Other firms looking to take over UTL include Teleology Holdings, which offers a purchase price of $60.5 million, capital investment of $230 million over three years, and a 67-33 per cent shareholding structure; Neubacher Montage LLP offers $60 million for assets, $211 million capital investment and a 68-32 per cent ownership structure.
Baylis Consortium is listed second from bottom, with an offer of $55 million for assets, capital investment of $120 million over five years and a proposed 70-30 per cent shareholding structure.
UTL went into administration in April 2017, after years of zero underinvestment, corruption and mismanagement — when its main shareholder Libya’s private sector investment arm under its LapGreen telecom brand failed to inject required capital in the telco following former Libyan leader Muammar Gaddafi’s death in 2012.
The government, which holds a 31 per cent stake in the company, has since worked to turn around the telco whose total liability stands at $147 million owed to several creditors.
The creditors include the government of Uganda which is owed $53.62 million; National Social Security Fund is owed $2.84 million; East and Southern Africa Trade and Development/PTA Bank is owed $8.91 million; Uganda Communications Employees Contributory Pension Scheme is owed $3.34 million and others $77.86 million.
The government is keen on getting several key concessions as demanded by the proposed strategic investor in order to revamp UTL. Some of these include an extension of the telco’s service licence for 20 years and expansion of frequency bandwidth.
Other concessions the government wants for the investor are tax waivers on import duty for equipment, corporate tax, VAT and excise duty on services for the initial four to seven years, UTL to become the sole provider of ICT services to the government and for the telco to access and use the National Backbone Infrastructure.
The current ownership of the financially stressed, technically insolvent and under administration UTL is UCom with a 69 per cent stake and the Uganda government with a 31 per cent shareholding.