Addis Prefab In Serious Financial Crisis, Home Buyers Sued The Company

Addis Prefab Houses Manufacturing Industries S.C is on the verge of collapsing within a few months unless another party injects some cash into the company to fill its severe financial gaps. The share company is also letting its employees go as it suffers a serious liquidity problem, Capital reported.

Kibrom Tadesse, Chief Operational Officer of Addis Prefab, told Capital that the company can only continue to exist for the next three to six months unless it raises more capital during its extraordinary general assembly which is expected to be held on January 25.

Addis Prefab began with the goal of creating houses that were affordable to the Ethiopian market. Now they are facing legal challenges from shareholders who were promised cheap and quickly built homes. Because they are made from calcium silicate board and light steel structures they are less expensive than other common types of housing.

The shareholders, who are also home buyers, have also sued the company and its three founders over the company’s failure to deliver houses in the promised time. Home buyers paid 30 percent advance payments totaling 80 million birr upfront to secure homes and Addis Prefab in turn assured them that they would be delivered and become the owners of the houses. However, Addis Prefab is far from being able to follow through with their end of the bargin.

Addis Prefab Real Estate Business Unit, is engaged in its own real estate development, marketing and administration activities.

According to Kibrom, the financial gap and lack of a bank loan caused the construction of the houses to be delayed. He said that it took over a year to get banks to finance the project. Including Commercial Bank of Ethiopia (CBE), Kibrom said none of the private banks are willing to provide a loan. The company also failed to convince the government to provide guarantees for external loans.

“We were depending on bank loans to invest in the project to further continue the survival of the company. Unfortunately not a single bank is willing to finance our housing solutions,” he said. “We are now waiting for the general assembly to raise the capital of the share company so it can continue to operate, otherwise we will be forced to declare bankruptcy and dissolve the company,” Kibrom added.

To appease the shareholders, the company has come up with the idea that each one has to increase their investment, seeking to raise an additional 200 million birr. If this tactic does not work, Addis Prefab will turn to foreign companies to help. The COO hopes to raise 400 million birr in the upcoming three months, yet some house buyers have already started to withdraw their initial deposits.

The shareholder’s ill feelings are fueled by the findings of an auditor, who reported that close to three million birr in transactions has been misplaced and is unsubstantiated by documents. To make things worse, some 20 million birr is reportedly missing.

The company has 861 shareholders and a paid up capital of 42.9 million birr.

Source: Capital