Fortune News | May 29,2021
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 29,2021
Featured | Sep 04,2021
Delicate Number | Nov 20,2021
Radar | Sep 10,2021
Agenda | Jul 03,2021
Sponsored Contents | May 20,2021
Radar | Oct 02,2021
My Opinion | Dec 25,2021
Editorial | Jun 19,2021
Fortune News | Jul 03,2021
November 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
November 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
October 16 , 2021 . By HAWI DADHI
Residing in a country with no capital market, an organised marketplace for trading se...
August 28 , 2021 . By HAWI DADHI
The streets of Addis Abeba are as varied as they are many, although too many of them have yet to be named. From the narrow alleyways of the...
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 tw...
May 21 , 2022
There was a great deal of handshaking and patting each other on the back at the Hyatt...
May 14 , 2022
Diana Yohannes is one of those actively engaging in social media platforms with her T...
May 7 , 2022
The Ethiopian Economic Association (EEA) recently proposed the formation of a macroec...
April 30 , 2022
There is no ambiguity in the UNDP's assessment of Ethiopia’s economic performance a...
PM Abiy Ahmed (PhD) at a Gala Dinner Called for the Awarding of the Félix Houphouët-Boigny Peace Prize
May 6 , 2019
Adulteration is getting out of hand. Consumers in Ethiopia are being left to their ow...
Or see contact page