When compared to Kenya, Uganda’s capital markets are not too busy.

It has been a couple of months since Actis sold off their holdings in Umeme. Next up is the dfcu Rights Issue which was approved by shareholders in order to pay off a US$50m bridging facility from Arise BV - a consortium of private equity firms Norfund, NorFinance, Rabobank and the Netherlands Development Finance Company (FMO).  ‎

Aéko Ongodia, CFA, the Founder & CEO of Xeno Technologies, Inc spoke to Summit Business magazine about Uganda’s capital markets and the dfcu deal in particular. Below are excerpts;

Surveys show that few listed companies in Uganda return to the market to issue corporate bonds, bonus shares, or rights issues.  Why are listed companies ignoring the public?

It’s a combination of reasons. The most cited one is the complexity involved and the detailed disclosures required by the regulators. Sourcing funding from the public through capital markets by issuing debt or equity requires companies to meet a stringent criteria designed by the capital markets regulator to protect the providers of the capital (investing public). Most companies are reluctant to meet the required disclosures and thereby close out a viable (and in many cases a cheaper) alternative to sustainable long term funding for their businesses.

Lack of professional accountants and auditors is not the reason; in my opinion we have a surfeit of people in those professions in the country today. Rather, it is the lack of professional investment advisors/ bankers and other capital markets professionals with an intimate knowledge of how capital markets work and how to help companies raise long term capital from the public through the capital markets.

Companies need guidance from professional transaction advisors with an understanding of intricacies of raising capital from the public markets but also an ability to convey the long term benefits of using such markets. The ignorance around optimal sources of long term finance is perplexing and has significantly hindered the evolution of many of our local companies. Many entrepreneurs lack a basic understanding of how companies evolve from mom and pop shops or startup phase. I am astonished by it but I now better understand that the underlying causes are lack of technical expertise with experience in capital markets. We are doing our bit at XENO Technologies to bridge the knowledge gap to help companies chase much bigger ambitions.

Lack of understanding of the optimal capital structure of a company and a culture of short termism prevents many local companies from thinking beyond bank debt for funding the operations. For companies that I have helped raise capital, I always emphasize to them that bank debt should only be tapped for short term needs and not be relied upon for long term funding for two reasons: it is short term and expensive. If companies have a long term objective of expanding into new markets or producing new goods and services and evolving into bigger and more resilient enterprises, then the tapping funding from the capital markets is the most optimal. Capital markets were created to provide companies with capital to pursue their long term objectives. By raising money from the public you have a much more diverse investor base and you establish a track record of excellent public disclosures of the affairs of your company which engenders trust amongst the investing public which helps the company raise money cheaply in the long run.

What needs to change to attract more companies to list and for listed companies to maximize opportunities on the bourse?

The country certainly can use a lot more capital markets professionals including fund managers and investment bankers/advisors. XENO has helped companies through the process issuing both debt and equity through the public markets in our previous careers. We’re adding to the country’s growing repository of professionals and we hope can help companies grow bigger and take more ambitious goals.

An appreciation of the various sources capital for funding businesses. Beyond the initial capital provided by founders and internally generated revenue; bank debt, issuance of equity through an initial public offering (or a rights issue), and issuance of corporate debt in the capital markets are the most prevalent sources of capital for companies. It is exceedingly important for companies to realize that funding their long term strategy using bank debt is not optimal. Capital markets were created to play this role.

Dfcu recently took over Crane Bank. Dfcu’s management say that Crane bank’s systems were inferior to dfcu systems and that this complicated harmonization of operations and transfer of clients. What is the ideal timeframe for normal operations to resume after a merger or takeover?

I was quite impressed by the professionalism exhibited by both Bank of Uganda and dfcu in concluding the Crane Bank transaction. What’s more impressive was the speed and near flawless transition in switching over from and integration of the two systems. In the early 2000s we witness the nightmare switch from Uganda Commercial Bank systems to Stanbic systems that dragged on for years and more recently the switch from the Nile Bank systems to Barclays systems that also dragged and were the cause of a frustration to many customers.

However, dfcu has so far taken over two banks: Global Trust and Crane Bank and the transition for both has been nearly flawless. One could argue that technology has advanced significantly in such a way that transitions have become easier to manage from a technology perspective. My personal suspicion though is that dfcu took a strategic technology-related decision to focus on a flawless transition and minimize the pain customers face in such integrations. Although Crane Bank was a bigger fish to swallow relative to Global Trust bank, I suspect dfcu had both the experience, a laser-focused technology team, and strategic nous to make it look effortless. It is not hard to imagine that many people probably worked throughout the nights and weekends to make the switch appear effortless.

Is it easier for a listed company to attract low cost foreign capital, compared to an unlisted one?

It is almost always the case that a company with a track record of raising capital from the public will have an easier way in the subsequent raise compared to a first timer. This is essentially because going public (through an initial public offering) and subsequently listing on a stock exchange signals that a company is confident of its prospects, and has agreed to subject itself to the most stringent scrutiny by both the regulators and the investing public. Such public disclosures help companies establish a relationship with both the investing public and the regulators. In fact, many companies who want to issue debt over a long time, say over five years, will issue one prospectus that covers their entire funding program. To illustrate, if ABC Limited wants to borrow Ugx100 billion from the public over the next five years to fund its expansion into regional markets, it can apply to the capital markets authority to run a corporate bond program that spans five years with just one prospectus. In ABC’s case, it can decide to tap Ugx20 billion each year for the next five years using just one prospectus.

There are always resources to be invested and many investors (both individual and institutional) are on the lookout for quality companies to invest in every day. A well-run listed company that has built rapport with the investing public will be able to easily raise the capital it requires cheaply. This is especially true for foreign capital who sometimes have mandates to invest in tradable (listed) instruments.

Does a company have to be listed to list a corporate bond? What are the benefits of issuing one?


A company’s stock does not have to be listed on the exchange for it to issue a corporate bond. However, when it issues a corporate bond, the issued bond (not the stock) will be listed on the Uganda Securities Exchange. To my mind I can recall a few companies that issued bonds but were not listed on the Uganda Securities Exchange: PTA bank, Standard Bank Chartered Uganda, MTN Uganda, African Development Bank, and more recently Kakira Sugar Works. A company can choose to raise capital through debt, equity, or both. It is not obligated to be listed in order to issue a corporate bond.


Issuing bonds gives companies a lot of flexibility in deciding how they want to raise capital. They could decide to raise using floating interest rates, secured or unsecured, other features.

Because a bond normally pays annual interest coupon interest and principal at maturity which is usually several years down the road, more cash gets kept in the business initially.

Issuing corporate bonds does not dilute current shareholders unlike issuing equity (shares). Current shareholders get to hold the same percentage of the company if corporate bonds are issued.

Helps companies establish a track record with the investing public which in turn helps them raise money cheaply.

Other comments.

For banks and other technology-intensive companies managing, a flawless switchover after a merger or acquisition is supremely important. However, this has been made relatively easier with advances in technology. The real difficulty though is integrating the two cultures and subsequently harnessing the long term synergies to make the whole worth more than just the sum of the parts. The uncertainty around this is perhaps the reason dfcu’s stock price has languished over the last 6 months.


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