Enza’s fresh produce trading business recently advised its creditors in South Africa that it would withhold payment on invoices received since March 2012 until it had resolved debts owing to the group from its Hong Kong-based trading partner that purchased these creditors’ products.
But the CEO of Enza’s parent company Turners & Growers (T&G) Geoff Hipkins has confirmed to Asiafruit that its South African suppliers will definitely receive payments that are owed once it has worked through a very complex debt situation involving the Chan family running the Hong Kong-based import operation.
Through a deal brokered by the group’s former management, T&G appointed YC Chan and Daniel Chan to run an Enza Trading Hong Kong office. Under this arrangement, the father-and-son team were purchasing fruit from South Africa and selling it into the Hong Kong/China market, with all invoices settled by Enza Ltd in New Zealand.
However, the Chans have accumulated a debt of around US$2m to Enza, Hipkins estimates, with the bulk of that amount accruing between January 2011 and March 2012 on the trading of South African citrus and grapes.
To further complicate matters, the Chans have made a number of product quality claims on those receivals, according to Hipkins. “There’s a whole raft of claims that have muddied the water and made it even more difficult to ascertain who owes what to who,” he explains. “We need to work out how many of these claims are genuine.”
T&G has dispatched one of its New Zealand-based managers, Murray Sollit, to Hong Kong to help work through the issues with the Chans and expedite payments. “As we receive money from the Chans we are forwarding it to our creditors in South Africa, but this case is likely to become a legal one, so we must first clearly establish what debt is owed by the Chans before repayments can be made.”
A quick resolution of the problem is rendered even more difficult by the financially precarious position of T&G’s Hong Kong-based partners, said Hipkins. “We can’t simply pay back the creditors today because it would jeopardise the debt collection process that we must legally follow,' he explained. 'We’re a publicly listed company and we have to take appropriate steps. We have a responsibility to our shareholders to get this money back. We’ll honour all of our debts but there’s a process we must go through.”
While unable to put a timeframe on how long it would take to repay its South African creditors, Hipkins said he hoped it would be days or weeks rather than months. “We recognise people are owed money and we’re not running away from that. We will repay South African producers everything that’s owed once we can untangle this web of debt but we have this awkward interregnum period,” he said.
A priority in this process was to get “rock solid information” on the claims situation, and Hipkins said T&G/Enza was using independent professionals to get an accurate assessment of the claims made by the Chans. He acknowledged, however, that the claims were likely to impact on the eventual financial payments to growers.
Red kiwifruit a separate issue
Hipkins was also swift to clarify that the monies owed to South African suppliers result from the debt the Chans have accrued on their trading activities in South Africa over the past year or so – rather than from historical financial issues pertaining to the red kiwifruit venture between T&G and the Chans’ Sunrising Agriculture operation.
T&G previously paid Sunrising around US$2m for the plant variety rights (PVR) to the Chinese red-heart kiwifruit variety Hongyang, but subsequent investigations by T&G revealed that it was very difficult to gain a legally binding PVR in China. “T&G has engaged PricewaterhouseCoopers and it’s forensic investigation team to look into this trading operation,” said Hipkins.
Asiafruit understands that Sunrising also still owes US$650,000 to T&G’s UK-based subsidiary World Wide Fruit relating to the red kiwifruit deal.
The dispute between T&G and Sunrising over the red kiwifruit venture appears to have led the former T&G management to set up the Enza Trading Hong Kong office as a means for the Chans to ‘make up’ for financial losses and debts resulting from the kiwifruit deal, and to effectively keep the Hong Kong-based partner afloat.
Credit insurance withdrawn
Meanwhile, in South Africa, reports are circulating that credit insurance for Enza Ltd has been withdrawn. Moosa Juma of Credit Guarantee Corporation of SA confirmed to Asiafruit that the company had taken this step, with two of its South African clients yet to receive payment for product provided.
The episode is ill-timed for T&G subsidiary Delica, which recently established an export trading office of its own in South Africa, and credit insurance on that venture also appears to have been suspended.
But director of Delica Australia Murray McCallum, who helped to set up the South African office, said the operation was working around the issue, which looks to be a temporary setback.
“We’ve had to change our terms of trade with some suppliers – it’s likely to take a couple of months to sort this out but we are pressing ahead with developing our presence,” he said.
Delica’s Matt Bates relocated to South Africa last November, where he worked on grape exports during the 2011/12 season, and he is currently shipping South African citrus into Asia. “We’ve decided to keep Matt in South Africa on a permanent basis and we have also appointed a local guy Danie Verwoerd to work on the sourcing side,” said McCallum. “We’re starting out small but now we have a permanent presence we expect to develop some strategic partnership with major grower-packers.”
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