By Dawit Endeshaw
Initially a joint venture between Turkish investors and the State, Saygin now faces auction and a court charge after full acquisition by the investor
The Commercial Bank of Ethiopia (CBE) is to auction Saygin Dima Textile S.C. after the company failed to honour its loan obligations. News of the auction comes as the company is already struggling to pay 625 million Br it owes to the Ministry of Public Enterprises.
Saygin Dima, now entirely owned by Turkish investors, was established by a joint venture agreement signed between the Ethiopian government (represented by the then Privatisation Agency which has been replaced by the Ministry) and Turkish investors in 2008. The business partnership came about after the late Prime Minister, Meles Zenawi invited the Turks, who already had a textile factory in their home country, to relocate their plant to Ethiopia.
The partnership between the two parties could be considered a marriage of convenience, since the Privatisation Agency had been mandated by law not to establish companies or enter into joint ventures. However, with the intention of encouraging foreign companies to invest in Ethiopia, the Agency established a joint venture with the Turkish investors.
And so the Saygin Dima Textile factory was set up with the government having a 60pc share valued at 625 million Br and the Turks controlling the remaining 40pc. The number of shares to be distributed between the two parties was dictated by the government. The company's machinery alone had an estimated value of 406 million Br. The company managed to secure loans totalling 574 million Br loan from CBE following the partnership deal.
Despite its rosy beginnings, the partnership between Agency and the Turkish investors ended in a parting of ways, following government frustration over the factory's unsatisfactory performance. Consequently, the government withdrew from the joint venture in 2014.
As part of the settlement deal pertaining to the venture fallout, Saygin agreed to make a 10pc down payment for purchase of the government's share value.
Times were hard for the company as it struggled to find money to stay afloat. Securing working capital was a big headache for the company, Omer Ali, general manager for administration & finance of Saygin, told Fortune.
In a bid to overcome the financial shortages it faced, the company sought means to access further loan financing. It once requested the Privatization Agency to give its green light for a loan using the factory as a collateral, said Omer. However the procedural hassle took time and the agency refused to give its blessing, effectively crushing any chances of the company's getting a loan. Adding more complications to Saygin's bureaucratic woes, the Agency transformed into the Ministry of Public Enterprises.
Despite its difficulties the factory, located in Sebeta-Dima, 24km southwest of Addis Abeba, became operational in 2011.
The plant is established on a 17ha plot of land. It planned to produce 30tn of yarn; 40,000m of fibre and 50,000m of finished fibre daily. However, from the very beginning it has been under-performing with less than 50pc output than the plan.
"Saygin's performance was below its capacity," said Bantihun Gessesse, communication director at the Ethiopian Textile Industry Development Institute.
In a bid to support the sector, banks in the country, in the past year alone, disbursed 31pc of a 75.5 billion Br loan to the sector. In what can be considered as a sign highlighting a sector-wide problem, Development Bank of Ethiopia's 60pc nonperforming loans were registered in this sector.
This fiscal year, for instance, the company has exported twice in a year and collected 105,000 dollars. It is one of eleven textile factories which exhibited a 100,000 dollar reduction in terms of export value. Looking at the sector in general over the last six months, textiles underperformed with 41.1 million dollars revenue from exports, widely missing its target of 60.1 million dollars.
Saygin's financial problems are also affecting the well-being of its workers.
"There was even a time where we were tempted to minimise the size of the working force we had because we could not pay salaries," said Omer. Currently, the factory employs 1,200 workers.
Now standing on the brink of collapse, Omer hopes to find a financial assistance deal.
Such a deal is expected to takes place with Pathfinder, a South African-based company. This will be a second attempt for the Saygin to look for a third party financier. Previously it was negotiating a deal with Pure Perfect Ltd. Unfortunately that company failed.
The company is striving to keep production going while at the same time struggling to make due on the payment it owes for purchase of the government's shares. After repeated failure to pay the Ministry, the latter took the case to the Federal High Court.
CBE's latest auction, which is scheduled for July 21, 2016, comes in this context of a factory caught between a costly divorce from its former partner and a struggling sector. The auction has listed textile machinery, a four-storey building and staff rooms. The machinery had been imported free of Customs duty.
When Fortune visited the factory two weeks ago, operations were ongoing with the commissioning of two new pieces of machinery purchased at a cost of 60 million Br.
"Hopefully the deal with Pathfinder will materialise," Omer said.
Source: AllAfrica
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