Plans for government to buy shares in ROKO Construction limited are not the best option to save the financially constrained company from sinking, a Committee of Parliament has advised.
Days ago, Henry Musasizi, the Junior Finance Minister in charge of General Duties, told Parliament of a proposal by government to buy preference shares from the struggling construction firm.
According to Minister Musasizi, who is also the Rubanda East MP, government wants to buy 15,000 preference shares worth Shs202.13bn. But MPs on the Committee of Finance, Planning and Economic Development, to which the government proposal was referred for scrutiny, raised a number of concerns on the proposed shareholding deal.
On July 12, Mark Koehler, the Managing Director of Roko Construction Limited, and the company’s transaction and investment advisor Dr Joseph Kibuuka, led a team of officials to defend the proposal before the Committee of Finance, Planning and Economic Development, whose chairperson is Keefa Kiwanuka, the NRM MP representing Kiboga East Constituency.
MPs on the committee wondered whether this was an investment on the part of government or if tax payers’ money was just going to be dished out to the construction firm. The legislator argued that there seemed to be no guarantee that government would reap returns on the Shs200bn investment in Roko because government was only entitled to dividends in cases when Roko makes profits.
But the purchase of preference shares means that government does not conduct a lot of supervision on the company, something that was likely to make it difficult to be certain of profits and dividends.
Ibanda North MP Xavier Kyooma wondered why Roko was selling preference shares to government when the construction firm’s Articles of Association have no provision on purchase of shares. In his view, Kyooma argued that the whole deal seemed like borrowing, a scenario where government would simply extend a loan facility to the company.
Insisting that the shareholding deal looks like a loan and not an investment, Kyooma further noted that “the arrangement means that government cannot participate in decision making.”
Herbert Tayebwa Musasizi, the Kashongi County MP, advised Roko Construction Ltd to seek ways of financing its working capital to run its operations by selling shares in the stock market.
MP Tayebwa also noted that Roko’s recent financial statements do not reflect that the company is badly off since it has been making profits in recent years. The Kashongi legislator further noted that he does not see much reason why a company which made a Shs790m profit in 2018 and a Shs2.8bn profit the following year should get Shs200bn from government simply because it made a Shs3.4bn loss in the year 2020.
To him, the shareholding deal would be an investment for Roko Construction Ltd but a debt on the side of government which would have to keep paying interest on the money borrowed to finance the company or dive into the treasury to get tax payers’ money to give to a private entity.
He also predicted that government was likely to get “nothing” out of the deal with Roko Construction Ltd. To support his prediction, Tayebwa asked what would happen if Roko fails to make profits.
Other legislators such as Butambala County’s Muhammad Muwanga Kivumbi insisted that Roko Construction Ltd should seek other financing options such as applying for a loan from the Uganda Development Bank (UDB).
Responding to MPs’ concerns on the proposed shareholding deal, Dr Kibuuka, the transaction advisor for Roko Construction Ltd, assured the Committee that the shareholding agreement would secure the interests of government and would offer terms of reference that would be very flexible.
Kibuuka further insisted that the deal was an investment measure and not akin to borrowing as the legislators had argued. He noted that as a preference shareholder, government will get a 4.35 per cent per value of preference shares. The Roko Construction Ltd consultant also told Kiwanuka’s Committee that the shares would be ‘redeemable’ in a period of eight years. He also made it clear that government would free to quit the shareholding deal if it wishes in accordance with the terms of agreement.
On the powers of government to take part in Roko Construction Ltd’s decision making processes (especially those to do with profit making measures, accountability and transparency, Kibuuka explained that the agreement would put in place a new governance structure that would allow government to appoint at least two members to the Roko Board, both of whom will wield veto powers. He also revealed that one of the government board members would be allowed to chair the Audit Committee.
