The deal under which Norway’s Norfund transferred its shares in Dfcu bank to NorFinance last year is under investigation, it has emerged.
The Uganda Securities Exchange (USE) confirmed to The Observer that it had received complaints from different brokers at the bourse protesting the manner in which the deal was executed.
Paul Bwiso, the chief executive officer of the USE, told us by phone: “Yes we received complaints about the deal and we formed a committee, which is investigating what took place. It will produce a report on the deal,” Bwiso said.
Asked when he expected the report to be out, he said: “I can’t tell now, but soon.”
On November 12 last year, Norfund, which describes itself as the Norwegian investment Fund for developing countries, transferred its shares in dfcu to NorFinance, which is a joint venture investment company between Norfund and Norwegian private investors. The deal involved the transfer of 68,764,094 shares or 27.5 per cent of Dfcu worth Shs 47bn.
At the centre of the deal was African Alliance, the biggest brokerage firm in Uganda. The deal, according to our source, was supposed to be a private placement since Norfund was transferring its stake to a firm it owns.
“It was like a change of names,” said the source.
But the deal ended up on the open market, and yet it was supposedly a private placement. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.
The men and women in red jackets at the USE want answers why the transaction was carried out in that manner. Complaints centre on the fact that AA took the transaction to the market in order to earn brokerage fees.
“In a nutshell, AA was tasked by Norfund/Dfcu with handling this transaction, such transfer of ‘names’ only trade are termed as private placements in stock market terminology; and have clear-cut provisions of how they are handled where broker fees are non-existent as it is a change of name not ownership per se,” wrote one source in an e-mail to The Observer.
AA charged Norfund $260,620 (Shs 781m) for the transaction. That’s not all. When a trade comes open on the market, it is supposed to be competed for. Whoever comes up with the best price to buy the shares, takes the day. Brokers say AA ringfenced the deal and did not allow competitors to bid for the shares.
The shares were then transferred to NorFinance at Shs 697 per share. It is believed Dfcu missed better offers, some as high as Shs 815 a share. Dfcu’s share price is currently at Shs 850. These offers were apparently blocked since it was a private offer on the market.
“You cannot subject yourself to market conditions in order to extract broker fees while at the same time ring-fencing trade as it’s a private transfer. This is the
kind of stuff that makes conmen in organized markets,” said Andrew Muhimbise, a minority shareholder in Dfcu.
The brokers accuse former USE boss Innocent Dankaine for supervising the deal which was “going against the trade rules.”
African Alliance says the bone of contention is simply on the interpretation of the rules, and that is where perhaps some brokers might have an issue. Efforts to reach Norfund for a comment were futile as our e-mails went unanswered.
But Kenneth Katariko, the CEO for African Alliance, said: “It would be unfair for me to comment if USE is making an investigation. Wait [to write the story] until Paul [Bwiso, the USE executive director] is ready.”
Agnes Tibayeita, the Dfcu bank company secretary, said she was “not aware of the investigation going on; suffice to say all the transactions at the stock exchange are approved by the regulator.”
