Uganda Telecom: TDB loan puts Uganda’s creditworthiness to a test

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By Our Reporter

Government has moved to bail out struggling Uganda Telecom Limited (UTL) over failure to pay a sh45.6 billion loans owed to Trade and Development Bank (formerly known as PTA Bank).

Junior Finance Minister David Bahati told Parliament that Government’s intervention to settle the debt “has to do with our reputation with an international bank.”

“We have to come in before it affects other borrowing,” Bahati told the Parliamentary Budget Committee.

TDB is the financial arm of the Common Market for Eastern and Southern Africa, although membership is open to non-COMESA states and other institutional shareholders.

What this means is that when UTL fails to pay the loan, it may reflect badly on the country’s credit ratings internationally. At the request of a country, a credit rating agency normally evaluate the economic and political environment to assign a country a rating.

Obtaining a good sovereign credit rating is usually essential for developing countries that want access to funding in international bond markets. Additionally, investors use sovereign credit ratings as a way to assess the riskiness of a particular country’s bonds.

UTL collapsed into administration in March 2017 after Ucom, a Libyan government entity that owned 69% stake pulled the plug not to inject any finances into the firm. The rest of the shares (31%) are owned by Government through Ministry of Finance.

In April, UTL was placed under receivership in a move to save it from collapsing. According to a report from parliament, UTL debts peeked sh700 billion when its major financiers (Libyan Government) left.

According to Bahati, the ministry of Finance plans to raise the money through a supplementary budget to Parliament, which is likely to be financed through borrowing or budget cuts from other sectors.  

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As at May 2019, total assets value of UTL appreciated slightly from $40 million before administration to $84 million composing of investment in a submarine cable company, land and building, machinery and spectrum among others.

Amos Lugoloobi, the budget committee chairperson tasked government to speed up the search for a new investor in the telecom firm. Ruth Sebatindira, former President Uganda Law Society, took over management of the UTL in January after Bemanya Twebaze’s contract as caretaker expired in November 2019.

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