How Cabinet Was Duped Into Contracting Broke Investor to Recapitalise UTL

On April 29, 2017, Uganda Telecom (UTL), the country’s first telecommunication operator was placed under receivership after failing to meet its financial obligations.

According to a 2018 Cabinet memorandum, UTL’s total liability stood at $147m (Over Shs550bn). From this $147m debt, government owned $53.61m, NSSF-$2.84m, ESATD/PTA Bank-$8.91m, UCECPS-$3.34m and $77.86m for Others.

Other than liquidating the telecom company where government through Finance ministry owned 31% and the rest of the shares owned by UCom, government placed the company into receivership and in May 2017 appointed Bemanya Twebaze as its receiver-manager or administrator. This was after UCom pulled out of the shareholding deal.

During a cabinet meeting chaired by President Yoweri Museveni, the executive gave Finance ministry up to   

22nd May 2018 to find a new investor to ‘resuscitate’ UTL through an open bidding evaluation process. The job to search for a potential investor was left in the hands of State minister for Privatization Evelyn Anite and UTL administrator Bemanya Twebaze.

During the bidding process, 7 companies were shortlisted and the companies included; Hamilton Telecom ($70m), Afrinet Communications Limited ($67m), Teleology Holdings ($60.5m), Neubacher Montage LLP ($60m), Baylis Consortium ($55m), Afrinet Kenya Limited (pulled out) and Mauritius Telecom ($45m).

At this point, minister Anite wrote to Sydney Asubo, the Executive Director of Financial Intelligence Authority (FIA) to conduct a due diligence report on the above mentioned companies before they could award the contract to the best bidder.

Indeed on May 25, 2018, Asubo in a 10 page report submitted the findings and recommendations on each company and the due diligence report was based on information by the FIA from other financial intelligence units, companies’ financial statements/banking information and information obtained from open source, among others.

According to the FIA report, out of the 7 shortlisted companies, only one company [Mauritius Telecom] was the best option available despite offering the lowest assets of $45m.

“We have not received any adverse information related to non-compliance with any regulatory requirements. In addition, the Financial Intelligence Authority has not received any reports on this company [Mauritius Telecom] indicating possible involvement in money laundering or terrorist financing,” FIA report reads.

The report adds, “In view of the foregoing, it is our considered option that Mauritius Telecom is a financially stable company with credible shareholders whose funding sources are clearly known, and would be a variable investment partner with the Government of Uganda.”

On Teleology Holding Limited, FIA report found out that the Nigerian based company is a newly formed company with no records of previous business operations and financial records. Likewise Hamilton Telecom Ltd, FIA could not find its audited financial statements nor could they find the audited financial statements on Afrinet Kenya Ltd, Bayis Consortium and Telecel Global.

As a result, minster Anite on June 2018 reported to cabinet and carried with her the recommendations of FIA where they had agreed to contract Mauritius Telecom as the new investor. 33.5% shares of Mauritius Telecom belong to the government of Mauritius.

During the cabinet sitting, Minister Anite reported that despite FIA recommendations, her ministry and UTL administration had hit a stalemate on which company was suitable for the job which made it impractical to finalize the administration process by the 22nd May 2018.

It is said that UTL administrator, Bemanya expressed need to deal with other shortlisted companies other than Mauritius which had passed the litmus test. Bemanya proposed that the contract be handed to an investor offering highest amount of money for the creditors in accordance with the Insolvency Act.

He noted that all the offers from the potential investors were below the assessed market value of the company which is currently equivalent to US$ 80M.

“In light of his duty to get the best return for the creditors, he proposes to select the best three potential partners and engage them further with a view to revise their offer upwards. A final offer will be made to a partner with the highest offer,” the cabinet memorandum of 2018 reads. Therefore, Bemanya favoured Hamilton, Afrinet or Teleology to take up the deal simply because they offered to invest much more to a tune of $70m, $67m and $60.5m respectively.

However, when Afrinet withdrew their participation in the bidding process, Teleology and Hamilton remained the favourite to be contracted.

Whereas Bemanya’s move to give the deal to Teleology Holdings or Hamilton was objected by Ministry of Finance who were following FIA recommendations, Bemanya managed to convince cabinet that Teleology was the best investor and indeed by October 2018, UTL was a joint venture between Teleology Holdings which owned 69% of the company.

However, hardly 3 months into the joint partnership, Teleology Holdings which was by law supposed to pay 10% of the proposed amount (non-refundable) upon signature of the agreement, defaulted on the payment and later government established that the Nigerian company did not have the financial muscle to recapitalize UTL as recommended by the FIA report.

Indeed, minister Anite on Thursday (Wednesday) confirmed that government has gone back to the drawing board to search for a new investor through open bidding process to recapitalize UTL after the first investor duped government yet they did not have money to do so. If cabinet had heeded to the recommendations of FIA, there is a possibility a viable investor would now be in place.

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