"At this point, we cannot support proposals to have our loans converted into equity without a concrete commitment (by Northern Foods) to push through with the plant’s rehabilitation, it will be the only way to make the plant viable and ensure its profitability," said Quedancor president and CEO Nelson Buenaflor.
Buenaflor said Quedancor will only concur with the conversion proposal if NFC is able to raise the required P195 million capital it needs to push through with the rehabilitation of its 21-year old tomato processing plant in Sarrat, Ilocos Norte.
"The plant clearly cannot be competitive in its present condition, it does not have the capability to expand its product lines to accommodate the demand of its potential buyers," noted Buenaflor.
NFC, according to Buenaflor will be able to pay part of its obligations to Quedancor this year through a scheme that will have the tomato processor turn over 10 to 15 percent of its sales to the lending agency.
Quedancor loans to NFC were used mostly to pay its contract growing obligations with tomato farmers.
NFC chairman Bernardo Jorge B. Mitra had been quoted as saying the company wanted to push through with its long-delayed plan to acquire a P195-million loan that would be used to modernize its 21-year old plant.
"We haven’t dropped our plan of pushing through with the modernization of the plant. It would be the only recourse for the company or else, the other option would be to shut down the plant permanently," said Mitra.
NFC has been trying desperately in the last three years to raise funds to modernize the plant but has been unsuccessful in convincing financial institutions to lend the required amount. The company’s loan application submitted last year to the Agricultural Competitiveness Enhancement Fund (ACEF) had been put in the backburner.
Mitra said NFC has proposed to its creditors the conversion of their exposure into equity. NFC’s creditors include Livecor, National Livelihood Support Fund and the Quedancor.
"Some of the company’s creditors expressed willingness to support this scheme but nothing has been firmed up so far," noted Mitra.
The modernization of the NFC plant is critical to the company’s survival amid growing competition from foreign tomato processing companies, especially China whose presence in the local sardines industry has been consistently growing.
Major parts of the plant face obsolescence despite major repairs and maintenance programs.
NFC needs P195 million to retool three major plant facilities such as the aseptic sterilizer, concentrator and refiner, including the upgrading of the bag filler process controls, ancillary equipments and plant utility equipment.
Upgrading these facilities will enable NFC to produce and market the higher paste grade of 30/32 Brix which accounts of by 50 percent of the Philippines’ tomato paste requirements. Brix is the standard unit of measure of the percentage of natural tomato soluble solids (NTSS) which is the value used to measure the solids attributes of a tomato product. Tomato paste must not contain less than 24 Brix NTSS.
NFC’s operations are currently limited to the production of a single line of 28/30 Brix and can only meet up to 28 percent of total local demand. An upgraded plant will double production volume to 13,000 metric tons (MT) with the processing of both 28/30 and 30/32 Brix..
Banks however, are hesitant to extend further credit to NFC because of its poor financial standing. The company had been undercapitalized from the beginning. Its initial capital was just enough to buy the plant equipment.
For working capital, NFC borrowed from various government agencies. These have tainted its income statement but in recent years, its operations improved, allowing it to have net operating income as well as positive and adequate cash balances since 1994.
There are other constraints to acquiring a loan. NFC cannot use the land where the plant is situated as collateral because it is being leased from the provincial government.
Since NFC started operations in 1984, it has increased its customer base to include its biggest buyer, Jollibee Foods Corp., Genosi which toll packs for McDonalds Phils., California Manufacturing Co. Inc., RAM Food Products Inc., Del Monte Phils., Heinz-UFC Phils. Inc., San Miguel Foods, Purefoods-Hormel, toll packers and sauce and ketchup manufacturers.