Commercial Bank of Ethiopia secured over 35.5 million Br Judgment against the textile factory
The Commercial Bank of Ethiopia (CBE) has won a 35.5 million Br judgment-right over the case it has been battling for an outstanding loan with Saygin Dima Textile Factory S.C., who was the absent defendant.
The Presiding Judge of the Fifth Civil Bench at the Federal High Court, Ruta Gebretsadiqe, ruled in favour of CBE on May 19, 2017, as the defendant textile factory failed to appear in court and the Bank pleaded for an accelerated proceeding.
CBE took the case to court on December 20, 2016, claiming for an unsettled loan it had disbursed to Saygin Dima, a company that is located in Sebeta, 24km south-west of Addis Abeba.
Starting from May 2011 up to 2015, in a series of loan agreements, Saygin Dima borrowed over half a billion Birr from CBE, according to the pleading of CBE. These loans were combined into a single loan contract of 554 million Br on September 30, 2014.
The two parties also agreed that the borrower would repay the loan with a nine percent annual interest rate every quarter of the year starting from September 30, 2015, which means a year after the completion of a yearlong grace period. The loan was planned to be paid in total in 2029, according to CBE's claim.
Saygin also got a 20 million Br overdraft facility, which allowed the Firm to withdraw beyond the amount it has in the Bank and another loan of 10.6 million Br from CBE.
Upon the failure of Saygin to pay the loans, CBE foreclosed the factory with its properties but failed to get an offer which fits with its initial price of 634 million Br. The Bank could only get the attention of Commercial Nominees Plc, which offered 159 million Br, far below the initial cost. CBE also failed twice to sell another foreclosed textile factory, Selendawa, as the auction failed to grab the attention of bidders.
The real value of the company fell short of covering the loan, accrued interests, and auctioning cost of the plant by a total of 35.5 million Birr. This deficiency forced CBE to sue Saygin seeking an enforcement to get the money back, according to CBE's pleading.
After reviewing the case for five months, finally, Ruta ruled in favour of CBE demanding Saygin's former owners pay 34.7 million Br to CBE for the minuend amount CBE owes Saygin in loan and expenses spent to auction the Company. These finally made the judgment debt 35.5 million Br. The Bank will fully take over the factory.
Prior to reaching to this level, Saygin had been going through various ups and downs. "Saygin faced a huge challenge in securing working capital and was even tempted to minimise its workers," told Omer Ali to Fortune a year ago who was deputy general manager for administration & finance at Saygin when the factory was under its former owners. Even as a gateway for its financial constraint it tried to find a partner but failed to realise it like the cases of Pathfinder, a South African-based company, and Pure Perfect Ltd.
First established as a joint venture between the Ethiopian government and Turkish investors in 2008, Saygin was fully transferred to Turkish investors as the government sold its share to them in 2011. The factory was also one of the companies which were attacked during the recent political protests.
Sprawling on a 17ha plot of land, the factory commenced production with only half of its plan, producing 30tn of yarn, 40,000m of fibre and 50,000m of finished fibre daily.
Currently, there are over 170 medium and large-scale textile factories in Ethiopia, and the sector is facing akin challenges in not a few factories. Not only Saygin but also ELSE Addis and Dire Dawa Textile Factories also failed to be sold after each of them were auctioned twice by the Developmental Bank of Ethiopia (DBE). The textile industry has accounted for about half of DBE's non-performing loans in 2016.
Now, though CBE has secured the court's judgment, executing it will be the Bank's next move.
"If the judgment debtors do not have other properties in Ethiopia, the way to execute the High Court's judgment would be using the bilateral enforcement agreement between Ethiopia and Turkey, if there is any," said a legal expert in tax and commercial law.