Coimbatore-based cotton farm Sara Cotton has raised $6.4 million through a mix of equity and debt route to fund its overseas expansion plans in Ethiopia. The company has raised $4.5 million from the Development Bank of Ethiopia while institutional investors, as well as overseas and Indian HNIs, have invested $1.9 million for 14 per cent stake in the company, according to a company statement on Tuesday.
Chennai-based Kalpathi Group will have 58 per cent stake in the company, post the equity dilution.
“We see significant potential for our cotton farming business and will shortly start a 25,000 acre cotton farm in Ethiopia. Our target is to generate revenues of $50 million over the next 18-24 months. Over the next five-seven years, Sara Cotton plans to bring five lakh acres under cultivation,” said Sundhar Rajan, CFO of Sara Cotton.
The company is gearing up to meet the rising demand for cotton that is expected to increase in the coming years due to huge domestic consumption.
With this fresh capital infusion, the firm will aggressively utilise the funds to cultivate long staple certified organic cotton, with the help of modern irrigation facilities and a state-of-the-art ginning plant in Ethiopia for processing the produce.
Incidentally, Indian companies are actively investing in the east African nation over the past few years. So far, more than 400 Indian companies have invested $4.7 billion in Ethiopia while the trade between the two nations stands at $660 million and is expected to rise to $1 billion in 2015. The sectors which have witnessed maximum investments include textiles, mining, leather, agriculture, agro-processing and infrastructure.
Bangalore-based Karuturi Global Ltd has developed 100,000 hectares (247,105 acres) of land in the western region of Gambella to grow and process sugar, rice, palm oil and cereals. Hyderabad-based Neha International had recently struck a deal to acquire 49.99 per cent stake in Oromia Wonders Plc., a floriculture unit located in Ethiopia, for an undisclosed amount.
Companies like Sara Cotton, Neha International and Karuturi are banking on the favourable climate for agriculture in Ethiopia while the country offers ample incentives for investors, such as a three-year tax holiday, duty-free machinery imports, duty-free import of spares up to 15 per cent of the machinery value and access to the Middle East and European markets.