Fortune News | Sep 30,2021
The management of the state-owned Commercial Bank of Ethiopia (CBE) continues to wane in its botched efforts to sell off textile plants foreclosed from Turkish investors after defaulting on billions of Birr in loans.
The Saygin Dima and Selendawa textile plants owe the CBE over one billion Birr combined.
The CBE put Saygin Dima Textile Factory on the auction bloc last month for the second time in recent years with a floor price of 787.5 million Br. No interested buyers showed up at the bid opening date on December 15, 2021. The Bank had attempted to auction the company off five years ago, yielding similar results.
Saygin Dima became operational in the late 2000s after a joint venture agreement between the federal government and Turkish investors. The CBE disbursed 574 million Br in loans to the textile factory, but the government withdrew from the joint venture six years later, claiming "unsatisfactory performance" by the company. Saygin Dima was operating at less than half of its production capacity, though its management planned to produce, daily, 30tn of yarn, 40,000m of fibre and 50,000m of finished thread.
The Turkish investors had agreed to buy out the government’s share in Saygin Dima, valued at 625 million Br, advancing a 10pc payment upfront. The buyout never fully materialised.
Located in the Sebeta-Dima area, 24km southwest of Addis Abeba, CBE’s Acquired Assets Administration Office first auctioned the plant, with a four-storey building, in 2016. Two years ago, the Bank tried to sell the textile plant on the 17ht plot through negotiations to a Turkey-based Feda Textile. But officials of Sebeta Town Administration demanded that the buyer pay the arrears in lease payment, leading Feda to pull out from the deal.
"It was not part of the deal,” Abiy Gebrekristos, manager of Acquired Assets Administration Office at the CBE, told Fortune.
The fate of Selendawa Textile Factory remains more obscure. After no less than nine attempts to sell the company frustrated, the CBE tried a negotiated sale last week. Located in the town of Dire Dawa, the CBE put Selendawa Textile Factory up for auction four times with a floor price of half a billion Birr. No buyers showed interest.
Established through a joint venture arrangement between Turkish investors and the federal government in 2013, Selendawa is a processing plant for yarn on 18ht of land. However, the company has been operating on 10pc of its daily production capacity of 50tn of yarn, 12,000m of fibre, and four tonnes of netted fabric.
For people such as Leben Girma, who worked as a human resource manager at Eltex Textile & Garment Factory for eight years, the lack of due diligence carried out to let these investments made is the main reason for the failure of the assets in attracting buyers.
“The investors brought in aged machines that have poor quality with low productivity,” he said.
Saygin Dima and Selendawa have now ceased operations. Combined, the two textile factories had close to 1,500 employees.
It was a time of high hopes when various Turkish companies, including industry giants like Ayka Addis, Oyap Ethio Industry & Trading, Saygin Dima, and MNS Textile, began to invest in Ethiopia. Close to 244 Turkish companies entered Ethiopia over the 15 years, many of them setting foot in the country after 2011.
These companies have borrowed billions of Birr from the state-owned Development Bank of Ethiopia (DBE) and the CBE. Of the total 39.1 billion Br the DBE advanced in loans to public and private businesses in 2017/18, 20pc was disbursed to Turkish companies. Many of these companies failed to settle their debts, forcing the two state-owned banks to take over the plants from the owners and foreclosing on the assets in a bid to recover the credit.
In 2018, DBE established Ethio Capital Investment S.C. to manage and restart the operation of foreclosed companies. This includes Ayka Addis Textile Factory, which the DBE has unsuccessfully tried to auction off on three separate occasions. The policy bank, however, continues to cover payroll for over 4,300 Ayka employees.
Other textile factories, such as Angels Textile and Elsi Addis, are also among those foreclosed by the two state-owned banks for failing to service their debts.
Abdulmenan Mohammed, a financial statement analyst with two decades of experience, observed that the failure to sell off the factories would likely not significantly affect the CBE.
“The impact will be not significant," said Abdulmenan. "The Bank has already maintained provisions for these impaired loans.”
The 80-year-old Bank is the most capitalized in the industry, with its deposits reaching 735 billion Br by the end of the last fiscal year.
Abiy, the CBE manager, attributed the spell of uncertainty in the country to a lack of buyers` interest. The CBE has other options on the table in dealing with these assets, he disclosed.
“The Bank may lend 70pc of the funds required to investors who are willing to pay the 30pc,” he told Fortune.
Experts say that such options can only lead to a debt trap. Abdulmenan suggests the better possibility for the CBE is to review the floor price.
"It's set too high, which drives investors away,” he said.
PUBLISHED ON Dec 19,2021 [ VOL 22 , NO 1129]
Fortune News | May 07,2022
Verbatim | Dec 19,2021
Fortune News | Jun 26,2021
Editorial | Mar 18,2023
Feb 10 , 2024 . By MUNIR SHEMSU
In his last week's address to Parliament, Prime Minister Abiy Ahmed (PhD) painted a p...
Jan 7 , 2024
In the realm of international finance and diplomacy, few cities hold the distinction...
Sep 30 , 2023 . By AKSAH ITALO
On a chilly morning outside Ke'Geberew Market, Yeshi Chane, a 35-year-old mother cradling her seven-month-old baby, stands amidst the throng...
Dec 24 , 2022
Biniam Mikru heads the department of cabinet affairs under Mayor Adanech Abiebie. But he also has the unf...
Every country is eager to attract foreign direct investment (FDI) – and for good re...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country's most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or two...
Feb 24 , 2024
The recent policy pronouncement by the Transport Minister, Alemu Sime (PhD), of a pla...
Feb 17 , 2024
In the vast auditoriums of Addis Abeba, far from the era when flamboyant figures like...
Feb 10 , 2024
In a last week session before Parliament, Prime Minister Abiy Ahmed (PhD) was seen ad...
In a world increasingly attuned to the nuances of data reliability and its implicatio...
During a work deployment abroad five years ago, I encountered a woman whose frailty w...
I am greeted by the sight of numerous women lining the streets upon returning home from work each day. Their offerings range from fresh prod...