Bidders Keep Showing Little Appetite for Auctioned Properties

The Development Bank of Ethiopia (DBE) has been announcing many auctions in the past five months, from the one billion worth textile company, Elsie Addis, to the 15 million Br leather processing company put on sale last week. The auctions, however, were not as fruitful as expected since no bidder was interested in buying these properties. Realising the problem, in a bid to administer the unsold properties, DBE has already received the green light from the Central Bank to establish a new company with a capital of 10 million Br, reports SAMSON BERHANE, FORTUNE STAFF WRITER.

It is unfortunate for Shimelis Mulat to witness the three former owners of Dire Dawa Textile Company failing to keep the company afloat in the past decade since its privatisation. None of them has succeeded to either take the company to the next level or achieve break-even.

Shimelis, who has been an employee of the company for the past two decades, was uncertain about the survival of the company after the previous owner, Nas Foods Plc, left the textile firm two years ago owing to failure to pay its debts.

“It was very shocking when we heard the debtor left us without any notice,” he said, explaining the moment after the previous owner unprecedentedly left the firm. “The company was even unable to pay us our salaries.”

Founded almost 80 years ago, Dire Dawa Textile is known for manufacturing and distributing yarn and fabrics, having the capacity to generate an annual turnover of half a billion Birr annually.

After Nas left the company, Shimelis and no less than 1,000 other employees, through their association, lodged a complaint letter to the Prime Minister’s Office, demanding the government to reopen the company as it was a livelihood for many individuals living in Dire Dawa.

“No less than 3,000 people, with family members work in the textile factory, are dependent on the textile firm,” he said.

After reviewing the request, the main creditor of the project, the Development Bank of Ethiopia (DBE), formed a new committee to effectively administer the company following an order from the Prime Minister’s Office.

Before starting to administer the company, DBE tried to foreclose the textile giant three times, although no bidder was willing to acquire the company.

Now, it has been nearly one and a half years since a repetitive auction announced by the Bank to sell the textile company has been futile in getting any interested bidders.

“We have used all media platforms to announce the auction,” said Endanchiyelem Ketema, manager of the projects rehabilitation directorate at DBE. “Television broadcasters, radio stations and newspapers did not manage to grab the attention of the bidders.”

The auction of the textile company, which sprawls over 5,000ha, located on the outskirts of Dire Dawa City, was continually announced with an initial bidding price of over 150 million Br, but not a single bidder has come forward until now.

Angel Textile, Omo Valley Cotton Farm, Elsie Addis Textile and Condor Farms are also among big companies whose aggregate capital is more than a billion Birr but have had the same fate as Dire Dawa Textile.

“The temporary solution is clear- administering the companies and making some revenue while keeping the companies’ fixed assets productive,” Endanchiyelem added. “Making the company active will help us in getting the attention of bidders.”

In Ethiopia, a creditor bank is allowed to start a foreclosure process between three to six months after the debtor has missed the required payment. In some stances, late payers are subjected to fines and interest rates.

Also, the banks are obliged to start the foreclosure process after making sure that 30 days of notice is given to the defaulted borrower. The same trend, even more in some cases, and mechanisms are used at the policy bank like any other commercial banks.

Founded a century ago as the Society for the Promotion of Agriculture and Trade, DBE provides short, medium and long-term development credits to various investments that comply with the development strategies of the country, disbursing 5.3 billion Br of fresh loans in the past fiscal year alone.

One of the major sources for the loans are bonds collected from private banks, which pay 27pc of their gross loan disbursement into five-year government bonds.

Besides extending loans, DBE also revitalizes loans and takes foreclosure action as a last resort if the debtor is unavailable, in its separate unit for rehabilitation and foreclosure found at its headquarters and regional offices.

Indeed, foreclosure is not an enviable outcome neither for the bank nor the borrower. The threat of foreclosure, however, is believed to keep borrowers from default arising from negligence, and the same belief would encourage lenders to lend, according to a Master’s thesis submitted to Addis Ababa University’s School of Management by Gebru Meshesha in 2015.

These days, it is becoming more common to see the foreclosure of highly capitalised companies by various banks including DBE, which foreclosed more than ten big companies last year. One of them is Elsie Addis, found in Adama, 99km from Addis Abeba, that was being run by Turkish investors.

Sprawled on 200,000sqm of land, Elsie, according to the Textile Industry Development Institute (TIDI), was one of the efficient textile factories over the past half a decade, until the owners left the factory without paying close to a billion Birr worth of unpaid loans.

Since then, similar to the case at Dire Dawa Textile, DBE has started to administer the company after its attempt to sell the company failed twice. This, however, has not been without challenges.

Eshetu Lemma, a resident of Adama Town, is among 1,000 employees who have been working under the management of DBE for the past two months until he recently moved to another job.

“The management assigned by the Bank does not know how the textile industry operates as they are from the financial industry,” he said. “It seems like they are working for the sake of not closing the company.”

The same issue was also raised by Shimelis at Dire Dawa Textile.

“Although it has improved, there was a lack of a better understanding of the industry,” he said. “This has affected the productivity of the company.”

Acknowledging the problem, Yohannes H. Giorgis, chief executive officer of the textile company, who was assigned by DBE, relates the under productivity with the inefficiency of the machines and staff turnover.

“The machines are more than eighty years old,” said Yohannes, who managed to collect 30 million Br of revenue in the past three months. “The staff turnover is also another headache. More than 800 employees have left the company in the past three months alone.”

Shimelis, who is also the head of the textile labours association, agrees with Yohannes.

“How can the employees stay in a company that has no clear vision,” Shimelis said. “The management is not putting enough effort to excel the company’s productivity.”

For Yohannes, however, collecting the unpaid debt seems a big priority now.

“Until a new buyer comes along, we are focusing on earnings as much as we can to cover what the Bank has lost,” he said.

Meanwhile, gaining the attention of bidders continues to be a major problem for the Bank, whose non-performing loans have already reached 25pc – the highest in the banking industry during the 2016/17 fiscal year.

Realising the issues, the Bank established a new enterprise a month ago with a cost of 10 million Br – a move aiming at preventing the legal restraints in administering the assets of foreclosed factories and companies.

“Up until the investors’ appetites at least become lukewarm, this is a better solution to solve issues arising during license renewal and processing documents,” said Yohannes.

Nevertheless, this does not seem a solution for a banking veteran with three decades of experience.

“Business as usual approaches won’t bring a better output,” the banking expert commented. “The Bank should learn from the experiences of the Ministry of Public Enterprise (MoPE).”

MoPE sells state enterprises using a long-term payment system, where buyers are required to pay only 40pc as a down payment first and pay the rest in a five-year period.

An investment expert with decades of experience, Zemedeneh Nigatu, on his part, argues differently.

“Foreclosing and selling is not a major line of business for banks, rather there are those who make a livelihood from this,” Zemedeneh said. “I suggest the Bank hire a transaction adviser to solve all these issues.”



Published on Aug 14,2017 [ Vol 18 ,No 903]



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