Habesha Cement S.C. has secured a letter of credit (LC) for its Chinese contractor from the Eastern & Southern Africa Trade & Development Bank, known as the PTA, just five weeks after signing a long-awaited loan agreement for 660 million Br with the development bank of Ethiopia (DBE).
Habesha transferred 7.9 million dollars to the China-based Northern Heavy Machinery Industries in November 2012. The latter was reluctant to begin work, however, seeking more assurance that it would be paid, according to Mesfin Abi (Eng), CEO of Habesha, who spoke at a press conference held on Thursday, December 26, 2013, at Habesha's headquarters, located at the Ambassel building around Wollo Sefer.
The PTA opened the LC on December 19, 2013, at the contractor's bank - the Shenyang Branch of the Bank of China. The PTA agreed, on August 22, 2013, to co-finance the cement project by lending 50.4 million dollars.
The LC, which was required before the factory equipment could be imported, was what had hindered the Chinese contractor from beginning work on the plant, Mesfin said. Now work can begin as soon as January 2014, he added.
"When the project is finalised, the issuing bank is expected to discharge the payment," he said.
The issued LC, according to Mesfin, is irrevocable so that it cannot be unilaterally cancelled without the consent of the parties involved - the PTA, the Bank of China, Habesha and the contractor.
Habesha has had to carry out a number of works at the construction site before the Chinese company could come: a 10km road construction is underway; a crusher plant has been erected; the site has been cleared; the water well drilling and pipe-laying has been completed and an agreement is to be signed with a supplier for 8,000tns of reinforcement bar, according to a press release.
Tata Consulting Engineers Co. Ltd ofIndiahas already been hired as the project consultant in an agreement signed in November 2010.
Ethiopian Airlines has also been a beneficiary of a 40 million dollar loan from the PTA in the year about to end. This is to be paid back over 12 years.
What makes Habesha's case unique is that it stands out as the first local private company to secure foreign loans. Attempts by several other companies, including Access Resort, to get consent from the Central Bank for external loans have failed.
Habesha was established in September 2008 with 30 founding shareholders. The company floated 600,000 shares to the public on September 18, 2008, with a value of 1,000 Br each. When the initial public offering was closed, Habesha had amassed over 16,000 shareholders - the largest base for a private company in the country.
The company expects to begin cement production at the end of 2015.