BGI Ethiopia Acquires 25pc of Raya Brewery’s Shares

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Failing to acquire two state owned breweries, Harar Brewery and Bedele Brewery, and losing them to its archrival Heineken, BGI Ethiopia has secured a deal its managers believe will help them conquer the northern market.

BGI managers signed a memorandum of understanding (MoU) on Friday, July 1, 2011, with promoters of Raya Brewery, claiming 25pc of the 650 million Br green project to establish a brewery in the northern town of Maichew, Tigray Regional State.

The deal was signed between Eyessuswork Zafu, deputy chairman of Raya Brewery, and JN Blavier, CEO of BGI Ethiopia, as well as Jobst Meyer Zu Beisen, CEO of Brewtech, a founding partner based in Hamburg, Germany, which Raya brought on board by conceding 26pc of the company in August 2010.

Both Eyessuswork and Blavier signed the document in their own offices, with Beisen using Raya’s, source disclosed to Fortune.

Brewtech has agreed to pay 65 million Br for 65,000 shares, each valued at 1,000 Br, and will undertake the turnkey project for the engineering, procurement, and construction (EPC) of the plant.

The plant will be the first to be installed in the northern part of the country, in Alamata Wereda, 600km north of Addis Abeba. When completed, the brewery will have an annual production capacity of 600,000 hectolitres (hl), 16.7pc of the total current production in the market, bottled by the five operational breweries, among which BGI is a major actor.

There is a gap of 3.6 million hectolitres between demand and supply, according to research by Access Capital. This puts Ethiopia’s per capita beer consumption at four litres, a much lower volume than that of Kenya’s 12 litres and South Africa’s 59 litres, according to the same study.

“The potential of establishing a strong identity base by being the only brewery in the region and the availability of a mountain spring close by prompted our company to become involved,” Beisen had told Fortune back in November 2010, after he signed the MoU with Raya.

Brewtech first came on board as a partner to install and manage the soon to be established Raya, but its continued inclusion has been one of the issues of negotiations between promoters of the brewery and BGI negotiators.

The promoters of Raya are chaired by Tsadikan G. Tensae (Lt Gen), a former chief of staff of the Ethiopian Army who was not in the country when the MoU was signed last week, while BGI’s negotiators include Isayas Hadera, the company’s marketing manager.

There is a bigger ambition behind BGI’s acquisition of significant shares in a project that is still on the drawing board and has a long way to go before attempting to raise capital.

Raya Brewery was established by 58 founding shareholders, including Yemane (Jamaica) Kidane, former chief of staff at the Ministry of Foreign Affairs (MoFA); Selome Tadesse, former general manager of the Ethiopian Television and Radio Enterprise (ETRE); and Eyessuswork, general manager of United Insurance and president of the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA), in April 2010, with a registered capital of 2.5 million Br.

Named after the town where Tsadikan spent his early school years and the area where its plant is to be erected, the project has secured a 150,000sqm plot of land, lease free, from the Tigray administration.

Despite their success in securing such a vast plot with lush green land where there is proven ground water, success in mobilising equity from the public has proven elusive.

The group has only had marginal success in raising up to 80 million Br subscribed shares, of which 60 million Br is paid up, according to sources in the company.

“The coming into the picture of BGI means a lot to our drive to raise more capital from the market,” a promoter told Fortune.

BGI has to accept the terms dictated by the promoters, according to those close to the negotiations.

Ethiopia’s foremost brewer, with a treasure brand of St George acquired from the state back in the 1990s for 10 million dollars, had to agree not to change the colour and logo of the brand. Yet, the operational management of Raya will remain with Brewtech, as the latter has agreed to run the company for five years, sources disclosed.

It is a price BGI appears to be happy with paying in order to keep its hold in the Ethiopian beer market, perhaps threatened by the arrival of Heineken. The latter has acquired Harar and Bedele breweries from the state, beating the bid put in by BGI, after offering 2.7 billion Br.

The French owned BGI Ethiopia remains the country’s largest brewer, after adding a new plant in Hawassa, 273km south of Addis Abeba, with a capacity of producing 400,000hl. This addition brings its annual beer production to 1.9 million hectolitres, commanding a little over half of Ethiopia’s beer market.

Its joining hands in a green project that eyes to brew 300,000hl will not only add to its production capacity but pave the way for it to have access to the northern market which is now controlled by its brand, St George, and its competitor, Dashen, where it once owned shares, industry experts said.

Having the production capacity of over two million hectolitres will certainly give BGI Ethiopia a competitive edge over its most feared rival, Heineken, whose two breweries have a combined annual production capacity of 750,000hl.

BGI’s acquiring shares in Raya is hoped to make a sixth brewery in the Ethiopian market a reality, according to a promoter.

Raya’s promoters have pledged that their factory will be up and running in one and half years. Once operational, they promised hopeful shareholders (which number close to 2,000, according to one promoter) they will fully recover their initial investment within four years, with a return on investment of 25pc.

In its first year, Raya promoters project revenues of 264 million Br after tax with 11.7 million Br in profit, estimated to reach 89.1 million Br in subsequent years. The complete payback of loans they plan to take from banks will extend to eight years, according to the feasibility study of Raya’s projected performance for the next 15 years.