The Liability and Asset Management Company (LAMC) is allocating 176.3 billion birr to pay for debts in the 2022/23 fiscal year. Almost all of the debts will be paid to the Commercial Bank of Ethiopia (CBE), with the exception of 300 million birr that will go to the Development Bank of Ethiopia (DBE).
The sum represents the company’s greatest loan service payment since its inception in February 2021. So far, the management company has paid off 34.5 billion birr in debt.
The LAMC was created to absorb loans amassed by state-owned companies (SOEs) as well as loans that the SOEs failed to honor.
Among the 36 SOEs, the corporation has absorbed 398 billion birr in debt from poorly performing SOEs largely from Ethiopian Sugar Corporation (ESC), Ethio engineering group (previously known as MeTEC), Ethiopian Electric Power (EEP), and the Chemical Industry Corporation.
The debt accrued by the 36 SOEs totaled about 600 billion birr, prompting the government to establish a management company to absorb the debts. Over half a trillion birr of the SOEs’ loan is owed to CBE, another SOE.
After the LAMC absorbed two-thirds of it, which was guaranteed by the central government through the Ministry of Finance, those inefficient SOEs are able to receive more loans and resume economic operations. The debt was moved from the balance sheets of SOEs to the LAMC.
The CBE is in charge of the vast majority of the 600 billion birr loan. But foreign debts taken by these SOEs will not be paid by the LAMC. However, because it is just another state enterprise, the debt service model is from one SOE to another, thus shifting money from one pocket to another.
Aside from its founding capital, the LAMC has several sources of funding to pay for the central government-guaranteed loans of SOEs. The remainder of the debt is borne by the SOEs themselves.
The company has four funding sources to pay for the loans.
The first is its own money. The corporation was founded with 570 billion birr of authorized capital, 142 billion birr of which is paid up capital. This is Ethiopia’s greatest establishment capital, followed by the Ethiopian Investment Holding (EIH), which has a capital of 100 billion birr.
The revenues from SOE privatizations and liberalizations are the second source of funding.
The LAMC has received 14.4 billion birr, the proceeds of the USD 850 million paid by the Safaricom consortium to purchase an Ethiopian telecom license, according to a senior official who spoke with The Reporter.
State dividends are the third source Industrial Development Fund (IDF). This includes the annual dividend paid by SOEs to the government of roughly 20 billion birr.
Residual assets are the other source.
“If the capital is constantly accessed, the LAMC should be able to pay off the entire 398 billion birr loan within the next five years,” said the official. This means that if the LAMC manages to pay off all of the 398 billion birr it owes the CBE, the state bank’s capital will be significantly increased.
Of course, the SOEs whose debts are being absorbed by the LAMC are required to improve their performance as well. For instance, the Ministry of Finance has already solicited bids to sell eight sugar plants after the company absorbed their accumulated debt.