Guyana Refrigerators Limited (GRL) will be back in operation from January with a five-year tax break following an equity injection by Dr Habibulla Naimatali of Texas, a settlement of the company's outstanding liabilities with the Guyana Bank for Trade and Industry (GBTI) and a proposed capital injection of US$1M.
Dr Naimatali, through a firm called Galico Limited, injected G$178M into GRL for 51% controlling interest and the company has used $57M from this to settle its $195M outstanding debt obligation to GBTI. The bank, in the process, wrote off close to $300M in accrued interest at the overdraft penalty rate of 21.75%. Additionally, Dr Niamatali is seeking to inject US$1M, in plant and equipment and in working capital, into the firm.
GRL went into receivership in January 1999, after it could not muster working capital for its operations. This resulted from the firm using its overdraft facilities at GBTI to liquidate its European Line of Credit in anticipation of a more lucrative Japanese Line of Credit. However, GBTI refused to provide the guarantee necessary for GRL to secure the Japanese credit facility; the beginning of the firm's demise. When the firm could not meet its overdraft obligations, the penalty rate of 21.75% kicked in and the debt burden became onerous.
"In the end the bank was very generous, writing off close to $300M in interest and settling the debt for $57M," says Michael Brassington who was retained as managing director by Dr Niamatali. But just after the firm had run into the ground, its Water Street building had been ravaged by fire and the insurance payout of $104M had gone straight to GBTI's receiver, Ramesh Lall. Additionally asset sales raked in another $33M to offset the debt obligation. The total payment against the debt would be $204M to date. However, accumulated interest stood at $292M by the time the settlement took place in September 2003, Brassington indicated.
The government has granted GRL a five-year tax holiday to resuscitate its business and the firm is seeking an additional waiver on consumption taxes in the start-up phase. The company's position is that it has not been paying any taxes since 1999 to add to the government coffers and its start up will create employment for 225 persons who will be paying income taxes and there will be other spin-off benefits from the operation. Brassington expects that in the first six months the bulk of the staff will be hired and the target production will be 10 000 units in the first year.
Brassington, now 67, is confident that GRL will be able to compete for markets locally and regionally and says the major challenge the company will face locally will be the imported products which evade duties and taxes and are under-invoiced.
The company was the producer of refrigerators, stoves, freezers and an assortment of wood products such as spindles, doors, cupboards, etc, as well as wire and plastic products, which included toys.
"What we plan to do is revitalize and restart operations as it previously was, producing refrigerators, freezers and stoves and with a greater emphasis on wood products," says Brassington.
Brassington says that the firm will be producing quality products for the upscale market as well as comparable quality products at cheaper prices for the other segments of the market.
"We would be able to compete and make a reasonable profit," says Brassington, who sees the firm retaking control of segments of the local market such as freezers. He says persons continue to clamour for GRL freezers which they say are sturdier and GRL will be coming out with new models such as glass top freezers, bottle coolers and others to make inroads into the local and regional markets. GRL at one time held 70% of the local market for its products but this dropped to about 45% just as the firm went into receivership. As of now, it has only been producing on orders to keep the plants humming.
Brassington expects that with production on stream again in the new year, the firm will recapture about 30-35% of the market for those products in the first year. This, he expects, will move to 50% in the second year and by the end of the first five years, he expects the local market to absorb 70% of the company's products. GRL, he says, will produce refrigerators but will not get into the rat race. Refrigerator models will be upgraded aesthetically and will be improved for reliability.
The firm has already placed orders for raw material supplies and is in discussions with suppliers and potential buyers in the run-up to the start-up. Brassington said that the firm already has undertakings for purchases providing the price is right.
Since GRL went into receivership, Brassington has had discussions with some 24 potential investors to get the firm out of receivership and had signed four agreements at various stages but none of these got off the ground. "None of the persons appeared at the starting line Brassington said. Two of these agreements had been signed with foreigners.
For him, rescuing the company has been an exciting challenge and brings with it the beauty of seeing something grow. "I had never anticipated where we had gone (into receivership) as at the time we were buoyant. We had the Japanese line of credit approved. When GBTI turned us down on the guarantee, it came as a shock. But I think GRL has very good prospects and an exciting future...there is so much you can do," says Brassington. But of course, he intends to be much more cautious in his relations with banks in the future.
He feels that bankers do not see matters in the same light as businessmen. He is a former banker himself, having served as deputy manager of Barclays in 1956-1976 before he founded GRL.
GRL has 2500 shareholders who held $104M of the issued share capital. An extraordinary general meeting of the firm on September 29th approved the equity injection and tjeceding of control to Dr Niamatali. The old shareholders' shares have been diluted to three shares for every five shares held and GRL's authorized share capital has been increased from $110M to $350M.
A sum of $66M in shares (32 cents per share) is to be offered to creditors and if they decline, the board will decide how to sell these shares and at what price, Brassington indicated.