Shs1tn Rescue Fund: Uganda’s Distressed Companies Named

Oliver Lalani, the Roofings Ltd Executive Director takes visitors on a tour of the Roofings

The full list of distressed Ugandan companies hoping to benefit from a government ‘rescue fund’ has leaked.

The companies engaged in mining, approved manufacturing, pills hospitality, agro-processing and real estate have failed to finance their bank loans mainly due to low profitability, poor performance of the economy and high interest rates.

Other affected private companies deal in entertainment, education, cooperatives, broadcasting, oil and gas and transport.

High on the list is Steel Rolling Mills Ltd which has a liability of Shs 75bn from Standard Chartered Bank.

The steel processing firm’s asset value is estimated at Shs 132bn and currently employs about 1,000 workers.

Steel & Tube Company which employs 2,500 people in Kampala is yet to clear two facilities worth Shs 99bn from Stanchart and Bank of Africa.

In the manufacturing sector, Shumuk Aluminum Industries has failed to pay back a loan of Shs 8.2bn from DFCU bank; Shs 6.6bn from Baroda Bank and Shs 17bn from Crane Bank.

The powerful Roofings Steel Mills is struggling with a debt of Shs 201bn from IFC and Shs 8bn from Diamond Trust Bank.

The company’s asset base is estimated at over Shs 15bn, employing dozens of people.

The latest development underscores the fragility of the Ugandan economy especially the manufacturing sector.

In the mining sector, BM Steels is grappling with a loan of Shs 66bn. The company employs over 10,000 workers, according to official records.

In agro-processing, Namunkekera Agro Processing Industries Ltd in Nakaseke obtained a Shs 4.8bn facility from Uganda Development Bank which is yet to be paid back while Job Coffee expects a rescue fund to help them settle a Shs 21.3bn loan from Stanbic Bank.

Horay Investment Holdings (Aminah) needs Shs 120bn to pay off a loan so as to retain a 10,000-man workforce.

Simba Group of tycoon Patrick Bitature is struggling with a loan of Shs 210bn while MFK Corporation Limited needs Shs 10bn to clear the loan from Diamond Trust Bank.

In the real estate sector, Grapes Construction could close shop if it does not pay back Shs 100bn from Stanbic bank while flashy tycoon Hamis Kiggundu of Ham Enterprises needs to clear a Shs33bn loan from Diamond Trust Bank.

Club Silk needs Shs 5bn to pay back a facility from Crane Bank while Utoda Awakula Enume needs Shs 2.4bn.

Tough times

President Museveni recently admitted there was a problem of Government not paying arrears of private companies that supplied to Government.

“I have already directed Government to resolve this issue.  In any case, the Banks should not use this excuse to grab people’s properties as long as there is evidence that those companies are owed money by the Government,” said Museveni in his State-of-the-Nation address this year.

“Secondly, there are companies that supplied to the Government of South Sudan but were not paid on account of the crisis that was going on there.  I have already directed government to help these companies,” he added.

In the oil sector, revealed the president, there are companies that borrowed money in order to, for instance, buy drilling rigs.

Hence, on account of delays in the oil programmes, these companies’ loans have attracted huge interest and yet they are not yet working.

“These companies will get support from the Government to negotiate with the Banks for reasonable treatment,” said Museveni.

ChimpReports understands that talks are underway to help the troubled businesses to save the economy.

It remains unclear if government will pay off the loans or acquire shares in the affected companies.

A senior finance official told this website that for Ugandan companies which supplied food to the South Sudan government will be paid by Uganda on the understanding that Juba refunds the money when the economy stabilises.

For Ugandan companies struggling to pay off commercial bank loans, Finance Ministry officials want government to negotiate with banks to extend the repayment period or forfeit shares.

But it is understood some banks maintain that failure to get their loans paid in time would significantly affect their businesses hence pressuring president Museveni to authorise immediate payoffs.

What happened?

The manufacturing companies reportedly told President Museveni that the high interest rates and high electricity tariffs affected the profitability of their business.

According to Bank of Uganda’s Annual Report for the year 2014/12015, although interest rate pass-through from the Central Bank Rate to the interbank money market is high, fast and symmetric; the pass-through to commercial bank interest rates is imperfect.

In effect, commercial bank lending rates remained elevated in the Financial Year 2014/15, averaging 22.0 percent.

The weighted average lending rate on foreign currency denominated loans also remained relatively elevated.

“In terms of sectoral interest rates, transport and communication; building, construction and real estate; mortgage and land purchase continued to attract higher than average market lending rates, which may in part suggest the existence of persistent inherent risks in these sectors,” the Central Bank revealed.

Real estate, building, construction; trade and commerce; manufacturing and personal and household loans continued to constitute the bulk of private sector credit.

As at end June 2015, these sectors accounted for 73.5 percept of total private sector credit

Weak Shilling

Other companies attribute their woes to the depreciation of the shilling against the United States Dollar.

According to Bank of Uganda, the depreciation pressures which started in early 2014 continued through June 2015, with the shilling depreciating by 1.8 percent year-on-year on a trade weighted basis and by 29.1 percent against the USD to an average mid-rate of Shs3, 398.49 per USD.

The depreciation pressures were largely driven by the continued global strengthening of USD; continued weakening of the current account deficit; reduction in Foreign Direct Investment (FDI) inflows on account of deferred investments in the oil sectors because of low global oil prices; net portfolio outflows and elevated demand for foreign exchange from the key sectors of the economy including energy manufacturing and offshore players; and bearish sentiments in the foreign exchange market.

The South Sudan war has equally affected cross border trade, with thousands of Ugandans being evacuated from the war-torn country.

High power tariffs

President Museveni explained that the high prices of electricity is caused by the expensive money the Bujagali developers used

“As I have said before, the power from Nalubaale is at 1.04 US cents per unit.  That from Bujagali, on the other hand, is at 11US cents per unit. By a combination of measures, we shall resolve this handicap in a win-win way. The future electricity stations, especially, the big ones, will never be expensive in the same way,” he assured.

Interest rates

Museveni further promises to capitalize the Uganda Development Bank so that it gives low-interest loans to agriculture and industry (manufacturing).

The President said he wanted to see whether the involvement of the private sector in Banks, would lower the interest rates because of “competition” and the “efficiency” of private actors.

“Well, the facts show that it has not.  Even when the inflation rate is 5 percent, the Banks lend at 23.5 percent as of now.  It is these Commercial Banks that are fuelling the craze of importing by giving endless loans to importers (abagula).  Abakola ebintu (manufacturers) and the abatunda (those who sell) do not feature much in the lending scheme of these Commercial Banks,” he observed.

Uganda’s services sector employs about 430,000 people.

Below if the full list of distressed companies in Uganda:

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