By Samuel Sanya
INVESTORS are taking up the UMEME stock at a faster pace despite fears on the energy utility’s concession expiry, and concerns over the initial public offer (IPO) price.
Stanbic Bank, the transaction advisor and lead receiving bank, on Monday confirmed the oversubscription for the 46% stake allocated to international investors, hardly three days since the stock hit the primary market.
“There is a lot of interest in the IPO from the public and the price is not too high for investors,” Dan Edoma, a securities analyst with African Alliance, the lead sponsoring broker, said yesterday.
Critics have pointed to UMEME ’s losses in the recent past, the ailing power distribution network it inherited that requires huge investments to correct, the fact that the utility has only 13 years left on its concession and the relatively high price of sh275 per share.
“Sh275 looks high for an IPO share price compared with Stanbic which was at sh70, but that was about six years ago,” some investors noted.
Individual investors will take up 20% of the company’s IPO stock, institutional investors 25%, international investors 46%, while 9% will go to UMEME employees and directors.
The companies abridged prospectus shows that investors are required to open electronic accounts and purchase a minimum 1,000 shares receiving 100 bonus shares before the IPO closes on November 7, before the listing on the Uganda Securities Exchange (USE ) on November 30.
The shares are also expected to be cross-listed on the Nairobi Stock Exchange later.
Patrick Bitature, the UMEME chairman, pointed out in the share prospectus that proceeds from the share sales will be used to settle loans to reduce the debt burden.
“We are excited about the strong growth potential for UMEME . We believe the growth outlook for the Ugandan economy will continue to drive the demand for electricity,” he said.
“The generation capacity of the country has increased significantly with the commissioning of Bujagali hydropower dam. The additional smaller generation projects will support the expected increment in electricity demand,” Bitature added.
Charles Chapman, the UMEME managing director, allayed fears over the expiry of the 20-year concession in 2025, saying the law allowed them to apply for a further 20-concession extension.