Government, Roko shareholding deal raises eyebrows among MPs

Government’s proposal to enter into a shareholding agreement with a local construction firm, Roko Construction Limited has raised eyebrows among MPs on the Committee of Finance, Planning and Economic Development.

Last week, the Minister of State for Finance (General Duties), Henry Musasizi tabled a proposal for government to purchase 150,000 preference shares in Roko Construction Limited worth Shs 202.13 billion.

The request was directed to the Committee on Finance for scrutiny.

While meeting MPs on the Finance Committee chaired by Keefa Kiwanuka on Tuesday, 12 July 2022, Roko Construction Limited officials led by their managing director, Mark Koehler justified the move saying it will be "an exciting investment" to have government as a preference shareholder to raise its liquidity prowess.

However, MPs were not convinced about the proposal, that could see government borrow over Shs 202 billion to buy shares in Roko, saying there is no guarantee of return on investment since dividends are only premised on profits.

"Why is Roko selling preference shares to government yet the company’s Articles of Association do not allow buying of shares? This looks like a borrowing or a loan being advanced to Roko rather than an investment. This arrangement means that government cannot participate in decision making,” Xavier Kyooma (Ibanda North) said.

Butambala County MP, Muwanga Kivumbi wondered why Roko that has been boasting of a healthy financial status is looking for an investor yet the construction firm could have explored other options such as seeking a financial undertaking with Uganda Development Bank (UDB).

Kashongi County MP, Herbert Tayebwa Musasizi suggested that rather than selling preference shares to government, Roko should join the stock market in search for shareholders to inject money into the operations of the firm.

"Roko is a limited company that has been making profits. In 2018, they made profits of Shs790 million, Shs2.8 billion in 2019 and only made a loss of Shs 3.4 billion in 2020. It should therefore, be able to finance its working capital," Tayebwa said adding that the transaction only favours Roko with no monetary gain from government.

“This is an investment on the side of Roko and a debt on the side of government. Whereas Roko has the privilege of paying dividends after profits, government has an obligation to interest on the money it borrowed from the bank. So why is government going to borrow money to pay Roko and at the end of the day, come out with nothing? Suppose the company does not make profits?” he added.

According to Dr. Joseph Kibuuka, Roko’s transaction advisor, government’s interests will be well protected in the new shareholding agreement with flexible terms of reference.

Kibuuka also allayed MPs’ fears that under a preference shareholding agreement, government will not take part in decision making which could be detrimental to profit maximisation and accountability.

“In the new governance structure, government will appoint two members to the board on recommendation of the relevant ministries. One of the two members will chair the Audit Committee which creates an assurance platform into this transaction. The two members on board will still have veto rights," he said.

Policy analysts and economists urged the government last week to be careful in its plans to inject a Shs 202 billion in the struggling Roko Construction Company.

Policy analyst Godber Tumushabe said that preliminary reports show that government only owed Shs 1.8 billion to Roko for the Uganda Cancer Institute which was also paid.

Tumushabe said the resurrection of this proposal goes beyond just acquiring the 150,000 shares.