CASE STUDY
Umeme
CATEGORY
Supply
Capital market tool
Exit Mobilisation
Geography
Uganda
LISTING EXCHANGE
Uganda Securities Exchange; Nairobi Securities Exchange
SECTOR
Utilities; Energy Infrastructure
DFI / DONOR INTERVENTION
Actis (formerly part of CDC)
TRANSACTION SIZE
USD 165 million
TRANSACTION YEAR
2012–2016
Structure and Capital Market Tool
With the support of the World Bank, Actis took control of Umeme through a partial risk guarantee and used political risk insurance to make the investment in a sector with no commercial track record viable. After seven years of operational transformation covering capital investment, loss reduction, safety reform, and governance improvement, Actis exited via a dual-listed IPO on the Uganda Securities Exchange (USE) and the Nairobi Securities Exchange (NSE) in late 2012. Its primary listing on the USE was the largest IPO in Uganda's history. It was also the first Ugandan company to list on the NSE. The share offering was 37% oversubscribed, showcasing strong local institutional investor interest in the sector.
Actis exited its investment in Umeme through a phased divestment completed in December 2016. In the 2012 IPO, Actis, through its holding company Umeme Holdings Limited (UHL), sold a 39.9% stake to a broad investor base spanning international and East African institutional investors, Ugandan retail customers, and Umeme employees. In 2014, Actis sold an additional 45.8% stake, bringing its holdings in Umeme down to 14.3%.
Actis completed its final divestment from Umeme in December 2016, selling an oversubscribed 12.0% block to institutional investors, including Uganda's National Social Security Fund and several international funds. The remaining 2.3% stake was offered to domestic retail investors and management.
Actis weighed three exit routes for Umeme before ultimately choosing the public market option. A trade sale promised a clean, immediate exit but was hampered by the thin pool of credible buyers and the risk of handing the company to an owner less committed to its governance and social standards. A dividend recapitalisation would have returned capital quickly but left ownership unresolved while adding debt. Therefore, Actis chose an IPO, judging that a public listing offered a transparent, market-based valuation and the exit path best aligned with preserving Umeme's operational and ESG standards.
Background and Market Context
In the early 2000s, Uganda's state-owned electricity distributor was experiencing significant operational and infrastructure challenges. Uganda's electricity infrastructure was unsafe and in poor condition, the result of years of underinvestment compounded by the country's tropical climate and fast-growing vegetation. It was ranked 125th out of 148 countries in the World Economic Forum's 2008 assessment of electricity supply quality and reliability. Only an estimated 7% of the population had access to electricity, even as demand rose 10% annually, and Ugandan businesses identified inadequate power supply as one of the country's top three obstacles to doing business.
This situation prompted the Government of Uganda to launch reforms that unbundled the power sector into generation, transmission, and distribution. In 2005, it awarded the distribution concession to Umeme Limited, a company majority-owned by Actis. Only one year earlier, Actis had been part of the UK DFI then known as the Commonwealth Development Corporation (CDC), thus embedding development finance into the privatisation from the start. Umeme was awarded a 20-year concession to operate and maintain Uganda's electricity grid.
Development Impact
This transaction illustrates a supply-side exit mobilisation, in which a company originally a development finance asset was restructured and then transferred to public market investors. What makes this a supply story is the deliberate choice of exit route: rather than a trade sale or a sale to another private equity investor, the exit was structured to bring retail and institutional investors into a transformed infrastructure asset, making it possible for just about any category of investor, locally and globally, to support the energy sector in Uganda.
Since 2005, Umeme's customer connections have more than doubled to over 800,000 households, electricity line losses have been halved, and cash collection rates rose from below 80% to 98% in 2015. The choice of exit route supplied two East African exchanges with a mature energy infrastructure asset, offering local institutional investors an alternative to government securities, which otherwise dominate their portfolios.
As local pools of capital in the developing world grow exponentially and global capital increasingly searches for yield and geographical diversification, development actors have a choice: they can opt for a quicker, less complex private market sale or make a deliberate decision to broaden the investor universe and build efficient local capital markets while simultaneously recycling their capital. While the former may be most expedient, the latter accomplishes multiple system-wide objectives at once that are critical to the long-term trajectory of a sustainable development finance system.