Wednesday, January 18, 2023
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BusinessEthiopian airlines to triple paid-up capital

Ethiopian airlines to triple paid-up capital

Ethiopian Airlines has requested the government to raise its paid up capital to 300 billion birr, a three-fold increment from the current 100 billion birr. The group’s fast-growing asset and transaction volumes have already surpassed the existing threshold, forcing the request for a capital raise.

If approved, ET will have the third largest capital, next to the Liability Asset Management Corporation (LAMC), which was established with 570 billion birr capital last year, and ethio telecom, which is armed with a paid-up capital of 400 billion birr.

“We are awaiting the approval very soon,” Mesfin Tassew, the CEO of Ethiopian Airlines, told The Reporter.

The Airlines have requested the capital raise mainly in a bid to back the ambitious targets unleashed by the new CEO. The airline’s assets and the volume of transactions the airline is handling have increased substantially and are already much higher than our current paid up capital. ET has generated five billion dollars in revenue during the 2021/22 Ethiopian fiscal year.

The other factor behind the new capital raise request is the “debt to equity’ ratio.

“A proportionate debt to equity ratio is essential in a bid for us to get loans. For instance, we are purchasing new aircraft, and when we do so, our loan portfolio increases. Because the aircraft are purchased with credit, it increases our loan stock. Our creditors can also not provide finance for us. So unless the authorized capital is increased, we cannot have the right financial flow,” added Mesfin.

Officials at the Ethiopian Investment Holding (EIH) confirmed to The Reporter that the board is evaluating ET’s request for a capital raise. EIH is Ethiopia’s first sovereign wealth fund, established with a whopping 100 billion birr capital in January 2022. EIH now has well performing SOEs like ET under its wing.

Ethiopian Airlines is one of 27 state-owned enterprises (SOEs) whose management has been transferred to EIH since last June. Previously, these SOEs were governed by the Public Enterprises Holding and Administration (PEHA), which is accountable to the Ministry of Finance (MoF).On the other hand, EIH is directly responsible for the PM.

Ethiopian Airlines is the leading and most successful national carrier in Africa. The airline is regaining its pre-COVID-19 performance two years ahead of the industry forecast. This year, ET has served 8.8 million passengers, a 72 percent increase over last year. With more infrastructures and market expansion in the pipeline, the group has embarked on its ambitious vision for 2035.

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