Members of Parliament on the Finance committee have learned that Uganda Development Corporation-UDC’s move to carry out a valuation of Roko Construction Limited was unsuccessful after failing to access an 800 million Shillings budget from the Ministry of Finance.
Patrick Birungi, the UDC Executive Director made the revelation on Thursday while appearing before the committee. MPs are currently scrutinizing a government proposal to acquire 150,000 preference shares in Roko Construction Limited worth 202 billion Shillings.
The proposal for the purchase of Roko shares was first tabled before parliament last week when the Minister of State for Finance, Henry Musasizi told the House that Roko is facing severe liquidity challenges that have constrained its ability to execute contracted projects and adversely affected payments to its suppliers.
Roko currently has projects with signed contracts worth 1.064 trillion Shillings of which 696.6 billion Shillings are government projects. The company’s indebtedness, as of May 31, 2022, stood at 202.4 billion Shillings. It also has contingent liabilities from bank guarantees for ongoing projects worth 130.9 billion Shillings while its indebtedness to financial institutions totals 35.7 million Shillings and USD 20.7 billion and dues to local suppliers stand at 46.8 billion Shillings.
Roko’s liquidity situation arose primarily from delayed payments on major projects, failure to refinance expensive Shilling loans with cheaper external financing, the impact of the COVID-19 pandemic on the construction industry, escalation of financing costs, weak corporate governance, and inadequate management.
It’s on the basis of this that President Yoweri Museveni directed the Minister of Finance to negotiate the government’s acquisition of shares to salvage the company and allow it to implement outstanding project contracts.
Birungi notes that there was a requirement for UDC to carry out a valuation of Roko, which would in turn help government make a decision on the matter.
“We didn’t do a complete valuation or thorough due diligence because that is what we were supposed to procure for but our quick assessment was…if you know the result of the kind of work you are going to do, then why do it in any case,” Birungi said in part.
He added that in their quick assessment, UDC held several discussions with Roko, looked at their books of accounts at the time, and asked for information that Roko submitted to them.
“It was a bit difficult at the time for us to recommend that we even continue, we even wrote to finance and asked for money for us to do the valuation but it didn’t come,” Birungi further noted.
Asked by Butambala County MP, Muhammad Muwanga Kivumbi about the budget for the valuation process, Birungi said that it was about 800 million Shillings.
He said that there is a need to carry out an audit and verification of Roko creditors, negotiate terms, and carry out management controls before the intervention by the government is made.
Birungi also wants the government to take up key leadership positions in the construction company in order to monitor its operations.
“An audit is important for us to give ourselves comfort that we are on the right direction. We need to do an assessment on creditors and see whether the credit lines are supported by all the documents,” Birungi explained.
He however said that for the sake of the proposed investment by the government where most of the credit lines are going to be addressed, then preference shares are very acceptable.
“It really depends on the state at which the institution you are trying to intervene is in. And we have seen this world over where governments have come up to assist their own local companies under stress. So, the issue of intervening is not a problem at all as long as you have a big picture on that,” Birungi told MPs.
Simon Aleper, the Moroto Municipality said that without the valuation of Roko, it is difficult now to qualify the level of stress of the firm because the valuation was not done.
Patrick Isiagi, the Kachumbala County MP did not have kind words for Birungi saying that without a valuation on Roko, his advice to the committee on which shares are to be acquired cannot hold water.
Birungi emphasized that he did not carry out a full valuation of Roko Construction Limited due to the absence of funds.
Jane Pacuto, the Finance Committee Vice Chairperson noted that the president’s letter regarding the acquisition of shares in Roko was very clear on buying equity in the company. She wondered whether the President was later guided that preference shares were better.
In response, Birungi said that under the leadership of the Ministry of Finance, they had several meetings with the President and the issue of the type of intervention was discussed and the recommendation for preference shares came from a meeting with the President.
Keffa Kiwanuka, the Finance Committee Chairperson directed that UDC submits correspondence with Finance Ministry regarding the request for money to carry out a valuation on Roko and responses to it.
The Uganda Development Corporation is established under the UDC Act and is mandated with making long term investments in strategic sectors of the economy to stimulate industrial and economic development and spur private sector growth.