Pretoria Portland Cement Company, a South African-based company, has become the largest shareholder in Habesha Cement acquiring 10 per cent shares worth 70 million-Br last week. This development comes about a week before HC is to hold its general assembly.

A memorandum of understanding was signed in December 2010, last year, for the acquisition of 15 per cent of the shares. However, negotiations took a long time afterwards. The South African company had contacted Ernst & Young to consult with it on the feasibility of Habesha’s project as well as the dynamics of the cement industry in Ethiopia.

Habesha is the first Ethiopian company offering equity for the construction of a cement factory. It has raised around 405 million Br from Ethiopian investors.

Pretoria Portland is the first foreign company to buy equity in Habesha. However, it may not stay that way for long or hold its prominence in the company if an MoU signed with another foreign company is followed through.

However, Mesfin Abi, general manager of HC, declined to disclose the name of the company, as it had signed a nondisclosure agreement. The agreement, also signed a year ago, was for the acquisition of a 30 per cent share in HC worth 200 million Br.

“We are in the midst of negotiations and hope to finalise the deal soon,” Mesfin stated.

The anonymous company has written a letter to the Development Bank of Ethiopia about its interest in the acquisition, according to Mesfin.

Habesha has recently secured a 1.5 billion Br loan from the DBE covering 70 per cent of the estimated 2.1 billion Br required for the construction of its plant with the remaining 655 million Br coming from its equity contribution. Although a final deal is yet to be sealed, HC is counting on the promise of the anonymous company to buy 200 million Br-worth of shares as part of the equity contribution.

Although the amount required is 655 million Br, HC plans to raise as much as 700 million Br, according to Mesfin. With Pretoria Portland’s acquisition, which has the capacity to produce eight million tonnes of cement annually, HC has met the 30 per cent  required for the disbursal of the DBE’s loan.

Habesha has good reason for doing that. The last time they thought they had raised enough to enable them to borrow from the DBE, their plans were derailed, as National Bank of Ethiopia devalued the Birr against a basket of major currencies. This lowered the dollar value of the local currency that they had raised.

In a bid to raise that amount, HC had invited all major private banks to buy shares from it. United Bank became the first, acquiring a 10.2 million Br share, three weeks ago, in Habesha, which has selected Northern Heavy Machinery Industries Group for the construction of its plant.

It has paid an advance payment of 7.9 million dollars to the Chinese company for the turnkey project to be erected in Holeta, 40km west of the capital in Oromia Regional State.

Once its plant is complete, HC will be joining the industry with 1.2 million tonnes of cement at full capacity. There are 15 companies currently in the market with a combined production capacity of 7.8 million tonnes.

By the time HC expects to enter the market in 2014/15, the number of factories is expected to increase to 25 producing 17.3 million tonnes. As supply and demand converge for cement, prices have recently shown a downward trend. This is expected to continue with new entrants into the market.

However, this is not a concern for Habesha, according to Mesfin.

“There will be at least a five million tonne gap between supply and demand when we enter the market,” Mesfin told reporters . “Since we have lower functional and operational costs, we will be offering our product with the lowest price.”