Ceatech disputes
refusal of loan

It is getting a rare second
chance on its application

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By Tim Ruel
truel@starbulletin.com

An aquaculture company turned down for a $4.5 million state loan has complained that a state administrator was biased against its application, but the administrator says the claim is shibai.

The firm, Ceatech USA, is getting an unusual second chance at getting the loan at a monthly state Department of Agriculture board meeting this afternoon on Kauai.

Before the meeting starts at the department's Kauai office, board members will be taking a tour of Ceatech's shrimp-growing farms on the western side of the Garden Isle.

Ceatech had applied for the money in June under a $5 million fund created this year by the state Legislature. Another Kauai firm, sugar grower Gay & Robinson had applied for the same funds, seeking $4 million.

The $5 million fund was meant to help Kauai companies hire workers who lost their jobs when Amfac closed on the Garden Isle last year, leaving Gay & Robinson as the island's last sugar grower. The main attraction of the state loan is its below-market interest rate of 3 percent.

Gay & Robinson has received preliminary approval for the loan by Doreen Shishido, administrator of the department's Agricultural Loan Division. Ceatech's application, however, was rejected by Shishido in late September. She said the company simply can't pay the money back.

Since then, the Agriculture Department has said it plans to present Ceatech's application at today's meeting so the agency's board can decide whether to give the loan to Ceatech. It's an unprecedented step, Shishido says, because rejected applicants have not been heard on appeal in her eight years in the department.

Documents received from the state indicate the board is considering a Solomon-like approach of cutting the $5 million fund in two. Gay & Robinson would get a $1.8 million loan and Ceatech would get $2.5 million. Both companies would have to go elsewhere for the rest of their funds, facing higher interest rates.

In an Oct. 18 letter to Shishido, Gay & Robinson wrote: "Given the situation where there are more applications for funds than funds available, the politics involved and the legislative intent, G&R wishes to amend its loan request to $1.8 million."

Meanwhile, the matter has led to a battle of words between Ceatech and Shishido.

When Ceatech submitted its loan application in June, the firm claims, Shishido told the company that Gay & Robinson and another applicant had already applied for the money and that Ceatech's application was "too late."

"In our view, this clearly demonstrates predisposition on the part of the loan division administrator," Ceatech wrote to James J. Nakatani, chairman of the Agriculture Department, a couple weeks after Shishido rejected its application.

Shishido says she never told Ceatech it was too late to apply. Ceatech's Chief Financial Officer Ed Foley gave her the application in person, she said. "What I did tell him is we had two other applications," she said. "It's a courtesy, I thought." Shishido said she mentioned the same fact to the applicants that came after Ceatech.

Shishido has written a 26-page rebuttal, unsolicited by her department, to counter Ceatech's remarks about her rejection of their loan. Her major claim about the loan application: Ceatech keeps changing the numbers, making financial projections hard to believe.

The crux of the debate is whether Ceatech, a 6-year-old start-up firm that hasn't shown a profit, can use the loan money to expand its shrimp-growing ponds and turn its cash flow around. Shishido, in a September memo, said Ceatech has continually sought more investment for expansion since 1997, and revenues have not lived up to its hopes. Ceatech calls Shishido's analysis "highly simplistic," noting its projections for growth are based on its current income.

In her rebuttal, Shishido said venture capital is more appropriate for Ceatech than a government loan. The firm has lost $6.7 million since it was founded in 1995 and the firm's sales would have to triple to provide a profit, Shishido said.

Ceatech had also blasted Shishido for ignoring the fact that another lender, Bank of America, had loaned the firm $3 million in 1998, relying on its lease of state land as collateral. Shishido points out the loan is guaranteed by the U.S. Agriculture Department, and the state would have no such guarantee.

The board's decision is vital to the state agricultural loan program. "Failure to collect on such a large loan may jeopardize the entire loan program," Shishido said in her written response to Ceatech.