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NSSF backpedals on Uganda Clays risk, cuts savers’ earnings

NSSF MD Richard Byarugaba(R) and finance minister Matia Kasaija

Management at the National Social Security Fund (NSSF) have said the body will not be converting all the debt it's owed by Uganda Clays Ltd into stake in the construction materials maker, writes Ali Twaha.

This is a departure from an earlier position where the fund wanted to convert about Shs 20bn debt owed by UCL into more shares. This would take NSSF’s holding in the construction materials manufacturer from the current 32.5 per cent to 65 per cent.

Richard Byarugaba, the NSSF managing director, told reporters last week that they could not own more than 49 per cent in a company. Byarugaba also revealed that they had appointed an investment advisor to carry out due diligence on UCL property before taking further action.

“What is remaining is to try and do the transaction of converting our debt into equity,” Byarugaba said. “Unfortunately for us, if we are to convert our debt into equity, because we have seen the evaluations, NSSF holding in UCL would not exceed 49 per cent.”

“What we are now doing is to try and look for a new co-investor.”

In the first six months of 2016, UCL registered an improved performance largely attributed to lower expenditures. The company replaced the more expensive furnace oils with alternative fuels in a bid to lower the cost of production. In a statement, the firm said the costs of furnace oils were threefold compared to alternative fuels.

It made a net profit of Shs 1.3bn compared to a loss of Shs 1.3bn made in the first half of 2015. Meanwhile, the company’s cash flows also improved with a Shs 2bn increment in cash and cash equivalents in the six months to June 2016. This was, however, largely due to Shs 3bn received from the sale of land.

Even with these improvements, NSSF thinks UCL still presents a great risk. UCL managing director George Inholo told The Observer in April that the company was steadily recovering and that it would meet all its debt obligations. 

“We are going to pay [NSSF], considering that the costs [of doing business] are now going down. We can now afford. But we have to work out a payment plan,” he said. 

The firm’s shareholders have not earned a dividend in the last six years. Meanwhile, Byarugaba announced they would pay 12.3 per cent to savers for 2015, down from 13 per cent paid the year before. Finance minister Matia Kasaija said the drop in savers’ interest earnings reflects the hard economic environment the fund operated in last financial year.

“The environment has not been so nice. You remember the volatile exchange rates. [But] I am pleased to note that despite all that, the fund has performed well,” Kasaija said.

The fund declared after-tax profit of Shs b491bn, down from Shs 647bn in 2014/15 mostly due to a fall in the value of shares held in companies.  The Fund asset base grew by 18 per cent, translating to Shs 6.5tn, up from Shs 5.6tn.


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