Sunday, October 21, 2001


Loan program
divides Agriculture

In the battle for millions of dollars
in state loans, Kauai acquaculture
company Ceatech USA is no shrimp

By Tim Ruel

A company rejected by a state administrator for a $4.5 million loan is getting an unusual second chance at the money from leaders of the state Department of Agriculture, prompting a small firestorm within the agency.

Ceatech USA, a 6-year-old public company that raises shrimp on Kauai, had applied for the loan this summer after a $5 million fund was established by the state Legislature to make up for jobs lost when sugar grower Amfac shut down last year on the Garden Isle. The Board of Agriculture, serving as a lender of last resort for farmers, must approve the loans.

Ceatech's loan application was rejected last month by Doreen Shishido, administrator of the Agriculture Department's Agricultural Loan Division, who told department leaders that Ceatech had a track record of piling on debt and probably could not pay the money back.

Ordinarily, when Shishido rejects an application, she has the last word. Shishido has been in the loan division for eight years and has processed more than 100 loans to local farmers.

Rejecting applications is a matter of routine, and farmers frequently resubmit their requests to her after a rejection. But the department publicly announced Friday that it plans to air Ceatech's application before the Board of Agriculture when it meets this week on Kauai. State law gives the board the power to approve the loan, despite Shishido's rejection. The office of the department's chairman, James J. Nakatani, is preparing a presentation on behalf of Ceatech for the meeting, effectively contradicting Shishido.

"I've been with the state 25 years and I've never seen anything like this," Shishido told the Star-Bulletin in an interview this week. "It is unprecedented."

Facing pressure, she still refused to approve the loan. "My integrity and my reputation means a lot," she said.

Nakatani did not return repeated calls from the Star-Bulletin.

The heart of the dispute lies in the origin of the loan money at the state Legislature. When this year's session started, Ceatech lobbied several lawmakers on Kauai to help the company out financially. The shrimp grower has lost more than $6.7 million since it was founded in January 1995. Its latest financial report to the Securities and Exchange Commission said that to make money, Ceatech needs more investment to expand its shrimp-growing capacity.

The problem is that a lot of farmers on Kauai would like a loan, and it would not seem fair to single Ceatech out, said Rep. Bertha Kawakami, a Kauai legislator who was approached by Ceatech.

"All of those guys are suffering," she said. "If I'm going to put something in and say it's only for so-and-so, you run into trouble."

Kawakami introduced a bill along with other Kauai representatives. Different committees kicked it around, supporting the intent of helping Kauai companies, but struggling with how broad the offering should be.

"It was clearly a bill that was primarily focused on Ceatech," said Rep. Ed Case, whose family has long-standing personal and financial ties to Kauai. Case said he had no problem with loaning state money to Ceatech if it would help the company survive.

However, he had a problem with a bill that appeared to be open to anyone when it in fact was meant for one company.

Another Garden Isle company, sugar grower Gay & Robinson, took an interest in a loan to expand its production, and offered testimony at a Senate hearing.

Kawakami said she recommended splitting the money between Ceatech and Gay & Robinson. Ultimately, the Legislature left the issue open, offering a $5 million loan to any Kauai company that gained the approval of the Agriculture Department. The annual interest rate of the loan was set at a below-market 3 percent.

Gay & Robinson and Ceatech applied for the money, with G&R seeking $4 million and Ceatech asking for $4.5 million. Both companies said they could hire several dozen workers with the money, and both offered collateral. But clearly, the Board of Agriculture could not award $5 million to both firms.

As early as July 20, agriculture loan administrator Shishido said she could not approve Ceatech's loan because it didn't seem likely the company could pay the money back, according to a Sept. 26 memo Shishido wrote to Nakatani.

But months later, at a Sept. 7 annual shareholder's meeting at the Kahala Mandarin Oriental hotel, Ceatech announced it was going to get $2.5 million from the Agriculture Department.

It was less than the company had asked for, but to make up for the difference, Ceatech had received tacit approval for a separate $2.4 million loan from Central Pacific Bank. The bank's loan would carry a guarantee from the U.S. Department of Agriculture, but it would also depend on Ceatech getting money from the state.

Nakatani continued to press Shishido to revisit Ceatech's financial records, according to the Sept. 26 memo.

"On Sept. 11, 2001, and on other occasions, (Nakatani) insisted that we find a way to provide funding to Ceatech for the lower amount of $2.5 (million) - $3 million," Shishido said in the memo.

On Sept. 18, Shishido again told Nakatani that she did not believe Ceatech could pay back the loan. Her analysis, included in the Sept. 26 memo, points out that since 1997 the company has repeatedly taken on debt while predicting that an expansion would lead to profitability.

All told, the company has received about $18 million in funding, including convertible debt held by its owners and a $3 million loan from the Bank of America, issued in 1998. On Sept. 26, Shishido wrote Ceatech to say she had rejected their application.

Foley declined to say what Ceatech's immediate reaction was, noting that it was probably not proper for publication in a newspaper.

Ceatech is now preparing a presentation for the Board of Agriculture's meeting on Thursday, said Ed Foley, Ceatech's chief financial officer. He declined to specify how the company would counter Shishido's assertions, but said Ceatech would not have applied for the money if it couldn't pay it back. The company has not defaulted on any of its debt, including the $3 million loan from Bank of America, Foley said.

"There's no basis that we cannot meet our obligations," he said.

Ceatech officials have held discussions with the Agriculture Department's chairman about the loan, Foley said, but he was not present for the talks and couldn't say what they were about.

Meanwhile, Shishido approved Gay & Robinson's request for a loan. Being a private company, G&R's finances are not available for review like Ceatech's. However, the firm has said that it has no outstanding loans.

According to several sources, it appears likely that the Board of Agriculture will offer portions of the $5 million to Ceatech and Gay & Robinson, giving neither company what they asked for.

Rep. Case said he would support the Agriculture Board in making objective decisions about loan candidates, "but there better not be any outright favoritism going on there."

Any perception of favoritism opens a dilemma, said Rep. Kawakami. In the wake of the Sept. 11 attacks, Hawaii's tourism companies have been shedding staff and even filing bankruptcy in some cases. If everyone's hurting, everyone's going to want money from the state, she said.

"State loans are problematic," said Case. "State loans usually come into place when moneys cannot be borrowed privately. That usually indicates a company that is in some trouble financially."

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