The government has tabled before parliament a proposal to purchase 150,000 preference shares in Roko Construction Limited.
Henry Musasizi told parliament that the shares will be worth 202.13 billion schillings, which will be paid over a period of five years. The transaction, he added, is intended to provide financial support to the company so that it has the necessary liquidity to meet its operational needs and other obligations.
The payment will consist of shares purchased at a par value of 150 billion Shillings and a share premium value estimated at 57.6 billion Shillings.
Parliament heard that Roko has been faced with severe liquidity challenges that have constrained its ability to execute contracted projects that have adversely affected payments to its various suppliers and the financial sector. The company is currently significantly indebted and its indebtedness, as of May 31, 2022, totals 202.4 billion Shillings.
It also has contingent liabilities from bank guarantees of 130.9 billion schillings. While its indebtedness to financial institutions totals 35.7 million US dollars and 20.7 billion schillings, bank guarantees issued for ongoing projects amount to 130.9 billion, which would be retired as projects are executed; and dues to local suppliers are 46.8 billion schillings.
Musasizi says that the liquidity constraints have affected various government construction projects, including the Parliament of Uganda, the Inspectorate of Government, the Uganda Cancer Institute, and the Ministry of Finance.
He explains that the genesis of the company’s liquidity situation arose primarily from delayed payments on major projects; the failure to refinance expensive Shilling loans with cheaper external financing; the impact of the COVID-19 pandemic on the construction industry while financing costs continued to escalate; and weak corporate governance and inadequate management.
Roko currently has projects in hand with signed contracts worth a total of 1.064 trillion Shillings, of which 696.6 billion Shillings are government of Uganda projects. 292 billion equivalent works remain unfinished out of the 1.064 trillion contracts.
“The consequence of the company’s collapse would therefore impact these projects negatively.” “The Uganda National Association of Building and Civil Engineering Contractors (UNABCEC) estimates that the government would incur an additional 120 billion schillings in placing these contracts with new contractors if the company was wound up,” Musasizi notes.
Roko Construction appealed for authorization from Parliament in order to salvage Roko Construction and allow it to implement its outstanding project contracts by injecting 159.6 billion Shillings through the acquisition of 150,000 preference shares at a nominal value of 1 million Shillings per share and a share premium of approximately 57.13 billion Shillings.
He explains that the share premium is being paid because the government’s acquisition will be paid for over 5 years. The share premium consists of the financing costs and exchange rate costs associated with the payment preference shares over five years and the conversion of 42 million US dollars in facilities from TDB to ROKO Construction.
Musasizi says that this facility is secured by the commitment that the government makes to ROKO Construction to purchase the preference shares. He added that the Ministry of Finance already had clearance from the Attorney General for the transaction and appealed for Parliament’s support, noting that ROKO Construction Limited, founded in 1969, is one of Uganda’s leading construction and civil engineering companies and that in 2019, it was one of the largest taxpayers in the construction industry and was the first construction firm in Uganda to get international certification standard.
The document before parliament indicates that in October 2019, President Yoweri Museveni directed the Minister of Finance to negotiate the government’s acquisition of shares in the company.
The President’s directive was premised on the following: the absence of a government-owned construction company, which subjected the government to the use of private companies that are nearly wholly foreign-owned and domiciled. The government currently spends 950 billion per annum on projects in the road and power sectors that are implemented by foreign companies, “reveals the proposal.”
The other reasons cited by the President are that Roko Construction was implementing a significant number of government projects, making it a suitable local partner; the need to lower construction costs for government projects; and the need to build the capacity of local firms in strategic sectors and industries.
The Speaker of Parliament, Anita Among, referred the government’s proposal to the Committee of Finance for consideration and to report back in one week. Roko has in the past executed major building projects in Uganda, including Workers House, Crested Towers, the Namugongo Shrine, Bank of Uganda, and Mapeera House, among others.
Section 23 of the Public Finance Management Act 2015 provides that a vote cannot enter into a transaction or agreement that binds the government to a financial commitment for more than one financial year, except where the financial commitment is authorised by Parliament.
The Minister of State for Finance, Henry Musasizi.