IDS Holdings, manufacturer of bags for the agriculture sector, has shut down and is staring receivership in the face, having amassed two years arrears on its US$2.2M debt to the Royal Bank of Trinidad and Tobago and the International Finance Corporation (IFC).
Almost all of its 42 remaining workers have been sent home with a mere skeleton staff in place. Company secretary, Suedatt Singh says they would all have to be released at the end of this month as there is no money to pay salaries. IDS Holdings began with 160 workers but has been steadily downsizing over the years.
The company has no money to purchase raw materials to continue its line of business - the manufacture of polysac bags. In its nine years of operations, all of which have been loss making, except for 1999 when it broke even, the company has eaten away its capital base.
Given the state of the company’s balance sheet, Singh says no credible banker would offer the company working capital.
“We can’t get back on our foot....any day now the bank would move in,” Singh said in an interview yesterday. The Guyana Agricultural and General Workers Union is negotiating with the company for workers to be paid their termination benefits.
IDS Holdings was incorporated in 1993 and took over the polysac project which was designed for Wray’s Enterprises under a Line of Credit extended by the Indian Government. At the time of takeover, the project was seen as providing a substitute for costly, imported jute bags being used by the rice, flour, sugar and stockfeed industries.
The company owes the government US$1.4M for the plant under the arrangement. It subsequently took a US$2.2M loan from the Royal Bank and the IFC to have the plant fully operational by securing additional machinery including sewing, cutting and extruding machines and for new buildings.
IDS began production in 1996 but was never able to fully capture the domestic market as it had expected because of competition from extra-regional imports. The firm has been clamouring since 1996 for the government to impose a 20% consumption tax on such imports to give it a competitive advantage.
Managing Director, Inderjeet Singh, says the government is claiming that this has to be discussed at the Council for Trade and Economic and Development (COTED) as it involves changes to the Common External Tariff (CET) regime. However, he argues that it is not an issue for COTED as the imports are extra-regional and even if they were intra-regional, COTED is not concerned with consumption taxes but rather duties. Both brothers noted that Guyana’s rice does not enter Trinidad nor Jamaica completely free, but enters free of duty, not taxes. Trinidad, the only Caricom state with a polysac plant, has imposed a 45% tax on imports. IDS had only asked the government to impose a 20% tax.
Suedatt Singh notes that importers of the product do not face the overheads that a manufacturing firm faces in Guyana, which include high electricity costs, the fluctuating exchange rate and the unstable price of fuel on the world market. The firm had also lobbied for a three-year exemption on duty on fuel but was only granted six months.
“I am not blaming the government. Guyana is just not ready for any sizeable industrialisation,” said Singh.
The local demand for polysacs is estimated at around 12 million bags per year while the polysac plant has a capacity for 13 million bags. However, in 1996, the year of start up, 4.1 million bags were produced and sold. In 1997 and 1998 this moved to 6.4 million; in 1999, production peaked at 7.1 million bags but in 2000 fell back to 4.7 million; in 2001 it increased to 5.8 million and last year production and sales were 4.2 million. Up to the end of May, the company had produced 1.1 million bags.
IDS has now shut its doors as it has no money, no market and has been unable to attract an investor to inject equity into the company. Since last year it has advertised itself on the Go-Invest website for an investor.
“We are willing to entertain any kind of arrangement, a 100% buy out or some form of participation in the industry,” Suedatt Singh says.
For the brothers, the decline of the company was rooted in its inability to capture the domestic market as Suedatt Singh asserts that if the 1999 level had continued, the company could have amassed revenues of $400M per year, a break-even position, and still be in business.
But Inderjeet Singh notes that the company has not received any orders from Guyana Stockfeeds Ltd since it was privatised a few years ago; it supplies a mere percentage of Guysuco’s demands and has seen demand from the National Milling Company reduced by about 40% with the move to plastic packaging. The rice-milling sector has been its major sales outlet with some sales to Jamaica.
But even here the rice sector has been hit repeatedly in recent years by natural disasters, financial crises and management problems which have led to several mills closing down, further shrinking IDS’ markets. The company supplies 750,000 bags per year to Jamaica, has lost its market in Barbados and is unable to supply Grenada because of the lack of a direct shipping link.
What the company now confronts is a lack of cash flow and no demand. The rice crop is out of season, there are no forthcoming orders from Guysuco and the number of smaller orders is insufficient to allow the operation to continue. But even if there were orders, Singh says there is no money to buy raw material as the reserves are finished. Equity injection into the company has been $170M against the pledged $500M.
The company has to source raw materials to be made into fabrics which are then made into sacks for sale. There is no raw material at hand or money to order any and the firm only has a small quantity of fabrics at hand.
For Suedatt Singh, it is inevitable that the Royal Bank of Trinidad and Tobago will foreclose on the business unless an investor turns up. The bank has already called in its loans and there have not been any takers of the offer to invest in IDS.
Meetings with several government ministers over the years have failed to provide a meaningful solution to the issue and Singh says the business is dead.
At 63 he would not be interested in staying on with the company if any rescue package is at hand but would be interested in seeing how the government would react to new persons who may take over the business in the event of receivership or an investor showing up.
Inderjeet Singh, on the other hand, says he would be willing to stay on if he could get a decent package or he may consider emigrating to Canada where he is a citizen.
The Singhs have a total equity injection of $60 million in IDS. Other shareholders include Winston Tyrell, P&P Insurance Brokers, Dr MY Bacchus, Guyana Trinidad and Mutual Fire Insurance Company, Sase Shewnarain and Trust Company Guyana Limited.