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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. |
