Mesfin Abi, chief executive officer of Habesha Cement S.C. (left), Gizaw T. Mariam, board chairman and main promoter (middle) and Abebe Dinku (Prof), board member had to go through many agenda points as they chaired the annual shareholders meeting at the mini stadium, located on Ras Mekonen Street.
Habesha Cement S.C. has filed a loan application to PTA Bank, a.k.a Common Market for Eastern & Southern Africa’s (COMESA), based in Bujumbura, Burundi.
This request followed after Habesha Cement, a fledgling industry with the largest ownership base in Ethiopia, lost funding after the state owned development bank buckled on its pledge of financing 70pc of the total project cost.
The cement plant in Holleta town, 35Km east of Addis Abeba, which will produce 1.4 million tonnes, is projected to cost a total of 130 million dollars, when it begins operation in 2014. Promoters of the company raised 150 million Br from over 16,000 shareholders, when they entered into a loan agreement, of 1.5 billion Br, in September 2011.
The Development Bank of Ethiopia (DBE) is now prepared to provide only 30pc of this amount.
“We’ve agreed that our Bank will advance 30pc of the loan in the next budget year, if Habesha could get the remaining financing from outside,” Isayas Bahere, president of DBE, told Fortune.
Habesha’s leaders, Gizaw T. Mariam, chairman, and Mesfin Abi, chief executive officer, are eyeing the regional bank hoping to get 60 million dollars in loans, sources in the company disclosed to Fortune. Habesha’s foreign partners, South Africa’s Industrial Development Corporation (IDC); and the International Financial Cooperation (IFC) may also be possible sources of additional financing, Fortune learnt. The latter is one of the major financiers of what is now the largest cement producer in Ethiopia, Derba MIDROC.
Close to 47pc of Habesha is controlled by IDC and another South African firm, Pretoria Portland Cement (PPC) Company Ltd. The emergence of these companies in Habesha’s landscape has changed the composition of the board of directors when shareholders conducted their annual meeting in late January 2013, inside the mini-stadium near the National Theatre, on Ras Mekonen Street.
Mesfin, who was elected to the board of directors with a vote size next to Gizaw’s 407,257 votes, had pledged to shareholders at the meeting that Habesha would be able to gather the required funds and open a Letter of Credit (LC). The company has hired the Chinese Northern Heavy Machinery Industries, Shenyang Co. Ltd., to carry out engineering, procurement and construction (EPC) contracts at a cost of 80 million dollars. Habesha has already advanced 7.9 million dollars to the turnkey contractor, according to company officials.
Habesha is nowhere closer to entering into production, a year after the timeline pledged by promoters when they closed their initial public offering in 2010. This was also a turn of events, far from how promoters such as Eskinder Desta – also voted into the board three weeks ago with the third largest votes of 388,109 – had envisioned things would go in 2008, when the plan for the project was hatched.
“Habesha is in its third trimester,” said the master of ceremonies at the shareholders’ meeting. “The obstacles will be tougher, but the results will be worth it.”
The promised result is a 122pc return on a share that could be harvested by a shareholder two years after an investment. It was a promise made during a bubble period in the cement market, when a quintal of cement shot up to 500 Br.
Ironically, the analogy used to justify the delay in the project, linking it to pregnancy, backfired. A woman shareholder, representing Shebelle Transport Company, retorted that there is a limit to pregnancy and it does not remain in a perpetual state.
It was a voice echoed by most shareholders, who insisted that the project was taking too long and a return on investment is looking doubtful, considering Habesha’s current state.
Habesha Cement managers are trying to restore confidence among shareholders citing pledges made by senior officials at the Ministry of Finance & Economic Development (MoFED) that the government will guarantee loans they will get from foreign financiers.
“It’s because Habesha has a large shareholder base and will contribute towards the industrial growth of the country,” Mesfin, told Fortune.
Indeed, the high level meeting between MoFED, DBE and Habesha Cement, has resulted in an agreement that Habesha Cement must not fail because it has a large shareholder base, and would get a supporting letter from the government, should it be able to secure foreign financing. But MoFED cannot directly give a guarantee to Habesha, it can, however, provide a guarantee for DBE to obtain the loan from foreign source so that Habesha can access the funds in Birr, according to officials from the Ministry’s Public Relations Office.
“The deal is for the DBE to sign a loan agreement with the foreign financiers Habesha brings in, and disburse the money to Habesha in local currency,” said a mid-level official at MoFED.
Habesha managers are positive on the prospect of obtaining loans from financiers.
“PTA Bank is sending an evaluation team to assess the project,” a member of the board of directors told Fortune.
The Bank, based in Burundi, has 18 countries, including Ethiopia, as shareholders. It is now headed by Admassu Y. Tadesse an Ethiopian and has previously financed Ethiopian Airlines in its fleet expansion program.
IDC on the other hand has previously financed PPC; thus, it is probable that it will contribute in raising funding for Habesha, according to the board director.
The contribution from the South African companies, which have secured three seats in the board of nine, a downsized composition from 12, has been appreciated at the shareholders’ meeting.
The prominent lawyer, Tamru Wondimagegnehu, and Terefe Mengesha were elected to the board, which brought in a new institutional investor, United Bank.
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