An­tho­ny Wil­son

As the strike at Trinidad Ce­ment Ltd en­ters its fifth week, the Clax­ton Bay-based ce­ment pro­duc­er is be­ing pushed clos­er and clos­er to the brink of fi­nan­cial col­lapse, which could throw thou­sands of work­ers on to the bread­line, dis­rupt the coun­try's con­struc­tion dri­ve and an im­por­tant part of its man­u­fac­tur­ing sec­tor and lead to tremors among the coun­try's fi­nan­cial in­sti­tu­tions.

The 12 per cent salary in­crease be­ing de­mand­ed by the Oil­fields Work­ers' Trade Union (OW­TU) to set­tle the strike would add $21 mil­lion a year to TCL's cur­rent wage bill of $170 mil­lion. In­creas­ing the wage bill of the Trinidad op­er­a­tions at this point would be a strange de­ci­sion, some an­a­lysts ar­gue, in the con­text of the fact that the group's share­hold­ers have re­ceived no div­i­dends since 2007 and TCL's bankers have re­ceived nei­ther in­ter­est nor prin­ci­pal on the com­pa­ny's $1.8 bil­lion debt in over 15 months.

The pro­posed wage hike by the lo­cal union may lead to sim­i­lar com­pen­sa­tion de­mands at the com­pa­ny's Bar­ba­dos and Ja­maica plants and may cause TCL's bankers and bond­hold­ers-who lit­er­al­ly are pro­vid­ing the com­pa­ny with life sup­port nu­tri­ents-to pull the plug on the com­pa­ny, which be­gan pro­duc­tion in 1954.

The TCL group, which has sub­sidiaries in Trinidad, Bar­ba­dos, Ja­maica, Guyana and An­guil­la, is in­sol­vent in that it de­ter­mined some­time in the third quar­ter of 2010 that it would have been un­able to pay its debts as they be­came due. In a no­tice to share­hold­ers dat­ed Jan­u­ary 18 last year, the group an­nounced that it was stop­ping the ser­vic­ing of its debt-both the prin­ci­pal sums due and the in­ter­est on the prin­ci­pal-be­cause it did not have enough in­ter­nal cash re­sources to pay both and car­ry on pay­ing its work­ers and its oth­er bills as well.

In its third-quar­ter fi­nan­cial re­port for 2011, which was is­sued last No­vem­ber 18, the group's non-cur­rent li­a­bil­i­ties-which in­clude its short-term and long-term debts-was put at $2.28 bil­lion. TCL was forced to de­clare a mora­to­ri­um on its debt pay­ments be­cause it was in de­fault of its loan agree­ments.

At the end of De­cem­ber 2010, TCL was re­quired by its lenders to car­ry max­i­mum short-term debt of US$45 mil­lion (TT$288 mil­lion) and to main­tain a min­i­mum cur­rent ra­tio of 1.2, which means that its cur­rent as­sets should have ex­ceed­ed its cur­rent li­a­bil­i­ties by at least 20 per cent. Ac­cord­ing to the group's 2010 au­dit­ed fi­nan­cial ac­counts, TCL's short-term debt (bankers' ac­cep­tances and over­drafts) amount­ed to $431 mil­lion, some US$67 mil­lion, or near­ly 50 per cent high­er than the debt agree­ments.

The com­pa­ny's over-de­pen­dence on short-term debt has two di­rect con­se­quences for its fu­ture sur­vival. First­ly, ac­cord­ing to the nine-month re­port for 2011: "The ab­sence of cred­it lines and the abil­i­ty to es­tab­lish let­ters of cred­it hin­dered con­tin­u­ous op­er­a­tions in Ja­maica and Bar­ba­dos in the nine months."

And al­so when TCL finds a banker will­ing to lend it short-term mon­ey, the in­ter­est rate it is forced to ac­cept is much high­er than that paid by a fi­nan­cial­ly sound com­pa­ny. TCL's Ja­maican sub­sidiary, Caribbean Ce­ment Co, was re­quired to pay in­ter­est rates as high as 21 per cent, ac­cord­ing to the group's 2010 fi­nan­cial re­port.

TCL was al­so un­able to main­tain the min­i­mum cur­rent ra­tio of 1.2. At end of 2010, TCL's cur­rent li­a­bil­i­ties ex­ceed­ed cur­rent as­sets by $1.36 bil­lion and this had in­creased to $1.44 bil­lion at the end of the third quar­ter of 2011. TCL's cur­rent li­a­bil­i­ties in­creased sharply in 2010 be­cause, ac­cord­ing to the In­ter­na­tion­al Ac­count­ing Stan­dards Rule 1 "Pre­sen­ta­tion of fi­nan­cial state­ments," a com­pa­ny that is in de­fault of its loan pay­ments must clas­si­fy all loan bal­ances as cur­rent li­a­bil­i­ties "to re­flect the fact that the loans are callable on de­mand as a re­sult of the breach," ac­cord­ing to the 2010 an­nu­al re­port.

The fact that all of TCL's $1.8 bil­lion debt is "callable on de­mand," is cru­cial for TCL's abil­i­ty to sur­vive the down­turn in the Caribbean economies as well as the five-week strike be­cause it means that the com­pa­ny's pro­duc­tive ca­pac­i­ty in Trinidad, Bar­ba­dos and Ja­maica can be forced to come grind­ing to a halt with no no­tice.

TCL has been try­ing to rene­go­ti­ate its debt with its lenders for more than a year now. The group had ini­tial­ly said that that re­struc­tur­ing ex­er­cise would be com­plet­ed by the end of Sep­tem­ber last year. As of yes­ter­day, there was no in­di­ca­tion of fi­nal agree­ment be­tween TCL and its lenders.

Un­til the debt re­struc­tur­ing agree­ment is signed, the de­c­la­ra­tion of the mora­to­ri­um on the TCL debt is an "in­for­mal" arrange­ment and not sub­ject to any le­gal agree­ment. This means, ac­cord­ing to the 2010 an­nu­al re­port, that TCL's "lenders have re­tained their rights to de­mand im­me­di­ate re­pay­ment of out­stand­ing oblig­a­tions in the amount of $1,704.7 mil­lion which the TCL Group is not in a po­si­tion to im­me­di­ate­ly meet.

"Should lenders de­mand im­me­di­ate re­pay­ment and ini­ti­ate le­gal ac­tion to en­force their se­cu­ri­ty there may be a risk to the go­ing con­cern of the TCL Group." In oth­er words, any one of the fi­nan­cial in­sti­tu­tions that have lent the ce­ment pro­duc­er mon­ey can de­mand im­me­di­ate and full re­pay­ment of their debt. If TCL fails to pay the lender in full and im­me­di­ate­ly, that lender can ap­proach a High Court judge is­sue for reme­dies up to and in­clud­ing hav­ing TCL de­clared bank­rupt.

It is note­wor­thy that TCL has main­tained in all of its pub­lic an­nounce­ments on the debt re­struc­tur­ing that the "ma­jor­i­ty" of its lenders have formed them­selves in­to a cred­i­tor com­mit­tee. In its Jan­u­ary 2011 state­ment, the group said that the cred­i­tor com­mit­tee com­prised "large do­mes­tic and in­ter­na­tion­al in­sti­tu­tion­al lenders rep­re­sent­ing 75 per cent of the TCL Group's to­tal debt."

Un­less the size of the cred­i­tor com­mit­tee has changed since that state­ment, it means that lenders rep­re­sent­ing 25 per cent of TCL's debt-or about $325 mil­lion-are not part of the cred­i­tor com­mit­tee and can take in­de­pen­dent, le­gal ac­tion to shut down TCL-even if there is an agree­ment be­tween the cred­i­tor com­mit­tee and the com­pa­ny.

Apart from be­ing un­able to pay its debts as they be­come due, the TCL group is al­so haem­or­rhag­ing mon­ey on a dai­ly ba­sis. TCL de­clared an af­ter-tax loss of $80 mil­lion for the 2010 fi­nan­cial year. The 2010 loss will be ex­ceed­ed in 2011 as the short­fall for the first nine months of last year amount­ed to $132 mil­lion.

Al­so the group has agreed that it will add the $113 mil­lion in re­struc­tur­ing fees and oth­er costs to its 2011 state­ment of earn­ings. Al­so wor­ry­ing some in­de­pen­dent an­a­lysts is TCL's de­lay in con­clud­ing the re­struc­tur­ing agree­ment, which en­vis­ages that all of the group's short and long term debt should be con­vert­ed in­to an eight-year fa­cil­i­ty with quar­ter­ly prin­ci­pal pay­ments recom­menc­ing in March next year and in­ter­est pay­ments in De­cem­ber this year.

The 2010 an­nu­al re­port says the re­struc­tur­ing would have been fi­nal by the end of Sep­tem­ber 2011. In Oc­to­ber 2011, the re­struc­tur­ing was de­scribed as mov­ing in­to its "fi­nal ap­proval and doc­u­men­ta­tion stages." In No­vem­ber 2011, TCL an­tic­i­pat­ed that the agree­ment would have been signed in Jan­u­ary as "var­i­ous ap­provals are be­ing sought while the le­gal agree­ments to ef­fect the re-pro­fil­ing are be­ing draft­ed."

The fact the agree­ment was not signed be­fore the Feb­ru­ary 27 on­set of the strike means that TCL lenders would be quite un­hap­py if the man­age­ment agreed to un­sus­tain­able wage in­creas­es for strik­ing work­er. And there are queries about the long-term sus­tain­abil­i­ty of TCL even with­out the wage hike. Lenders ques­tion whether TCL's ex­ist­ing ex­ec­u­tive man­age­ment can de­liv­er "the high val­ue ex­port mar­kets" in Haiti, the French Caribbean, Venezuela and Brazil and the pro­duc­tion in­creas­es that the com­pa­ny is pin­ning its hopes on for a re­cov­ery.

Ei­ther way, the ce­ment pro­duc­er is be­tween the rock of its trade union and the hard place rep­re­sent­ed by its lenders and there are doubts about whether the com­pa­ny can sur­vive the squeeze.

• See Part Two to­mor­row: Why has TCL failed?