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Published On  Jan 29,  2012
   
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Controversial Karuturi to Go Public, Here

Its managers plan to raise $12m dollars from prospective shareholders in Ethiopia

 

 

Karuturi Agro Products Plc, part of holding company Karuturi Glolabal Ltd, is planning to go public, floating 200,000 shares worth 1,000 Br each to local investors, once it gets the nod from its board of directors. The shares will be short-term, with a guaranteed annual return of 10pc in dividends.

Although the parent company, Banglore-based Karuturi Global, is publicly registered with 90,000 shareholders in India, this will be the first time, ever, that its Ethiopian subsidiary, Karuturi Agro, will float shares to the public, if all goes according to plan.

Karuturi Global had an annual turnover of over three billion dollars, while it made a net profit of 763 million dollars from its operations in 2011, earning its shareholders a 10pc return on their investments.

Although Karuturi has a presence in other African countries, such as Kenya, none of its investments are highlighted in its portfolio beside those in Ethiopia.

It has a large presence in the country, having been promised 300,000ht of land from the government in Gambella Regional State, 721km southwest of the capital, in 2008. It has already leased 100,000ht of this land, for 50 years, which it will have to finish developing before it is given the remaining land from the government.

Karuturi also runs a commercial farm on an 11,000ht plot in Bako, a small town farther south from Ambo, in Oromia Regional State. Part of over 30,000ht reserved for the state, remaining unutilised since its nationalisation in the mid-1970s, Karuturi has already developed 2,300ht of this land, sowing maize.

The development it has undertaken in Gambella has increased the land that it has developed to 50,000ht, where close to half of this is ready for sowing maize.

The company has spent over 100 million dollars in procuring a variety of mechanised machinery from the United States, India, China, Israel, Korea, and Japan. It has also developed an irrigation system with 50km of canals, 50km of drainage, and 40km of dykes, pumping 22,000 litres a second of water from the Baro River.

A European company, Water Watch, and Water and Power Consultancy (WAPCO) Services India Ltd have been contracted to handle the irrigation and drainage operations of this farm.

Beginning June 2011, the company started sowing on 10,000ht, while nursery work on a sugarcane plantation began on a 100ht plot. Close to 4,000ht of its land in Gambella has been prepared for the transplanting of 500,000 palm trees, hoping to extract 5,000kg of palm oil annually. A Scottish professional, Bruce Crabb, has been hired to manage this plantation.

Karuturi plans to export much of this produce to other countries in Africa, including grain to South Sudan, Sudan, Uganda, and Kenya. It also wants to supply the Ethiopia Commodity Exchange (ECX) and the USAID’s procurement for the World Food Programme (WFP).

“The company’s agricultural initiatives will not only have a major long-term impact on the country but also the entire African continent,” a directors’ report on its operations for 2011, addressed to shareholders, says.

Karuturi has hired an Indian company, i-maritime Marine consultancy group, to advise it on transport logistics from Gambella to these markets.

Karuturi will have its first ever harvest of maize and sesame in April and September, 2012, according to Ramakrishna Karuturi, managing director of Karuturi Global Ltd.

The company, with large presence in India, Dubai, and Kenya, has began its controversial debut in Ethiopia with a 50ht flower farm under Ethiopian Meadows Plc, near the town of Holleta, 40km west of Addis Abeba. Despite its long presence in the Kenyan floriculture industry, it was Karuturi’s decision to enter Ethiopia that gave it a competitive edge, now controlling nine per cent of the European cut rose market.

“This market has given a strong response to its hybrid tee varieties from Ethiopia,” directors told shareholders.

It has expanded since then, with subsidiaries such as Gambella Green Valley Plc, Karuturi Agro Products Plc, and Surya Blossoms Plc, the later has a 100ht of farmland in Woliso, 112km southwest of the capital.

The board of directors of Karuturi Global decided in their recent meeting to increase the company’s capital from close to 40 million dollars, in a bid to finance its ever-increasing financial commitments.

“We need an additional 180 million dollars for further land development [in Ethiopia],” Karuturi told Fortune. “We have managed to secure most of the finance for our investment, borrowing from a consortium of banks, mostly in India and some from Mauritius and Ethiopia. However, we want to raise about 12 million dollars locally by selling shares.”

Although the company’s initial plan was to issue bonds in order to raise the 12 million dollars locally, it could not do so in Ethiopia, as the issuance of bonds is restricted to government financial institutions.

“We have been advised to sell shares, instead,” said Karuturi. “Our shares will be more sophisticated than common stock. We will offer the best that there is in the absence of a stock market in Ethiopia.”

The company will sell preferred shares at face value, which guarantees shareholders precedence on dividends, after all debts have been paid. For those who want to sell their shares, they can redeem up to five per cent of the value of the total shares floated twice a year, according to Karuturi.

Nonetheless, redemption of shares at a secondary market is not allowed in Ethiopia, for the country has yet to develop even the simplest form of a share market.

The 10-member board of the company, all part of Karuturi Global Ltd, will meet on February 10 and 11, 2011, in Addis Abeba, to approve this plan, disclosed Karuturi. Further approval is also needed from the Ministry of Trade (MoT).

Any foreign debt or equity brought into the country has to be approved by National Bank of Ethiopia (NBE). Karuturi claims to have received approval for the 180 million dollar debt that it will bring in and for the additional 64 million dollars of its initial 100 million-dollar investment.

Raising the 12 million dollars by selling shares in Ethiopia will garner local trust and business partners, which may help overturn the image of a “foreign company here to grab land” that many attach to Karuturi, the company says.

Karuturi has long been associated with land grabbing, a term given to commercial farm developers, especially from the Middle East and Asia that lease and buy large tracts of land in Sub-Sahran Africa at low prices.

Gambella has especially been associated with such activity, as 32pc of the total area of the region’s land, 829,799ht, has been made available to foreign developers, according to a 2011 country report by the California-based Oakland Institute.

Indian investors, including Rochi Soya, which leased 25,000ht of land for soybean production, and BHO Agro, which has 27,000ht for bio-fuel, rice, pulses, and cereals, have a presence there. Saudi Star, a subsidiary of MIDROC Ethiopia, has over 100,000ht of land for rice development.

“Although the current plan to float shares has nothing to do with the ‘land grab’ accusation, it is always good to overturn the image that we are all foreigners in Ethiopia,” Karuturi told Fortune. “Ethiopia has been good to me. It is my adopted motherland, whose laws I respect. Only 1.6pc of our employees are expatriates in Ethiopia, and we soon plan to cut this number down to less than one per cent.”

Local banks are also involved in financing the 180 million dollars that Karuturi Agro is trying to raise.  The company has placed its loan request with the Commercial Bank of Ethiopia (CBE), and the Development Bank of Ethiopia (DBE), state-owned banks in favour of investments in agricultural and manufacturing sectors.

Karuturi already secured 127 million Br in loans two months ago from the CBE, which disbursed 35.9 million Br in loans and mobilised deposits of 86.5 million Br, the previous fiscal year.

Karuturi Agro’s loan request from the DBE is planned to amount to one billion Birr, according to officials from the company. Surya Blossoms Plc, another subsidiary of Karuturi that operates 100ht of farmland in Wolisso, south western Shoa district, 90kms from the capital, has already requested around 260 million Br from the DBE.

Its request may very well receive a favourable response from the Bank, which has identified commercial agriculture, agro processing, and manufacturing as priority sectors for loan disbursements, according to industry observers. During the first quarter of this fiscal year, the DBE’s management has surpassed its planned loan approval threshold of 2.1 billion Br, by almost a billion Birr, following its approval of 1.5 million Br in loans to Habesha Cement, the largest ever for a private company. The Bank has plans to approve 7.8 billion Br in loans and advances during the current fiscal year.

Karuturi Agro needs to raise its current 20 million Br in paid-up capital to half a billion Birr, to secure the 180 million dollars it is in the process of borrowing.

 

By Elleni Araya
Fortune Staff Writer

 
 
 

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