MPs, ROKO disagree over financing for the Company 

The Finance Committee of parliament and Roko Construction  company Limited have disagreed on the alternative financing possibilities for the company.

 The committee is considering a proposal from the government to purchase 150,000 shares worth sh 202.13 billion in Roko Construction Limited payable over five years. 

The transaction, according to the Ministry of Finance, is intended to provide financial support to Roko, so that it has the necessary liquidity to meet its operational needs and other obligations. 

The payment will consist of shares purchased at a par value worth sh 150 billion  and a share premium value estimated at sh 57.6 billion. 

Last week, the State Minister for Finance, Henry Musasizi told the parliament that Rokois facing severe liquidity challenges that have constrained its ability to execute contracted projects that have adversely affected payments to its various suppliers and the financial sector. 

The Company’s indebtedness, as of May 31, 2022, stood at Sh 202.4 billion.

 It also has contingent liabilities from bank Guarantees for ongoing projects worth Sh 130.9 billion while its indebtedness to financial Institutions totals Sh35.7 million and US$ 20.7 billion. Dues to local suppliers stand at Shs 46.8 billion.

While appearing before the Finance Committee, Koehler Mark, the managing director of Roko Construction Limited, and their consultant, Joseph Kibuuka, the MPs questioned whether the company had considered other alternatives to recover from its financial crisis.

Muhammad Muwanga Kivumbi, the Butambala County MP questioned whether Roko would be comfortable if the required  sh 202 billion  is deposited with the Uganda Development Bank (UDB) for onward lending to the construction company.

“If the government has given you projects worth Sh 696 billion…you require sh 202 billion, why don’t you ask for an upfront payment so that you sort out these issues?” Kivumbi queried. 

In the government’s proposal before parliament, Roko’s liquidity situation arose primarily from delayed payments on major projects, failure to refinance expensive Shilling loans with cheaper external financing, and the impact of the COVID-19 pandemic on the construction industry, escalation of financing costs and weak Corporate Governance and inadequate management. 

Roko currently has projects with signed contracts worth Sh1.064 trillion of which Sh 696.6 billion are the government of Uganda Projects. Out of the Sh 1.064 trillion worth of contracts, Sh 292 billion equivalent works remain uncompleted.

Herbert Tayebwa Musasizi, the Kashongi County MP questioned Roko officials why they had not made a listing on the stock exchange to raise the required money from floating shares other than running to the government to ask for a bailout in terms of preference shares.

Tayebwa added that the only advantage of preference shares is that one gets precedent on the dividend if the company is making profits or on sharing on the company in case it winds up. 

“Unfortunately with preference shares, you are not involved in any strategic decision because you don’t have voting rights. Therefore, government going into this would not actually have any impact on the decision that the directors of the company would take,” he emphasized. 

Tayebwa insisted that Roko considers listings on the stock exchange other than looking at the government.

Xavier Kyooma, the Ibanda North MP questioned whether Roko was giving government shares or it was an issue of borrowing. “We need to understand this…are you actually giving government shares or you are borrowing? You are giving preference shares and not ordinary shares where the government will not participate in decision making like others,” Kyooma said.

He added that these are redeemable preference shares meaning that at any time, Roko can decide to redeem the shares, and the government is kicked out. “Are you actually interested in looking for a shareholder or it is a form of borrowing?” Kyooma asked. 

In response to the queries by MPs, Roko Managing Director, Koehler Mark said that they are happy about the government becoming a shareholder in Roko and that he doesn’t see a reason to look at other alternatives.

He appealed to parliament to consider the government’s proposal to inject Sh 202.4 billion into Roko, saying that this will enable the stability restoration effect to the banks occasioned by the settlement of existing obligations by Roko.

Koehler, who appeared along with his sister, who doubles as a Director in Roko, Koehler Briotte, and their lawyer, Paul Jacob Batte said that the preference share investment by the government would be paid back within 8 years.

Joseph Kibuuka, the Roko Consultant said that part of their risk management is the need to reduce debt and that if they contemplated moving to another lender, they would defeat the option of increasing their leg-room should they need funds.

Asked what Roko would do if parliament said no to the proposed venture by the government, Kibuuka said that the effects of the government not investing would severely affect the financial sector and the different suppliers to the company.

He added that the benefits to the jobs that Roko holds are only guaranteed if the investment by the government succeeds. According to documents before the committee, Roko Construction Limited employs 1,945 Ugandans and up to 13,000 induced jobs.

Kibuuka further told MPs that governance improvements in the company are ongoing to improve the separation of roles and stewardship to keep risks at a minimal level. 

He also said that they have expanded representation to the board to include 2 members to represent government interests while providing expertise.

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