It was interesting to read Mr Badal’s letter published in SN on April 6, 2009 and titled
‘Not a party to court proceedings initiated by NICIL.’ The Government of Guyana, via its holding company, National Industrial and Commercial Investments Limited (NICIL) would not be in court if Mr Robert Badal had properly separated his roles of majority shareholder, Chairman of the Board of Directors and CEO/Manager of GSI. One can argue that Mr Badal has fused the roles of shareholder, board and management into one.
The real issue for any shareholder of GSI should be the level and quantum of related party transactions between GSI and Mr Robert Badal, and serious questions are posited on whether these transactions are arm’s length transactions. Given that the Board of Directors is appointed by Mr Badal and is composed of persons who are largely related to or work for Mr Badal, there is little independence of the board or management of GSI from Mr Badal’s influence.
The result of Mr Badal’s actions is considered by NICIL to be with prejudice to the minority shareholders. Based on the court’s ruling of Justice Jainarayan Singh Jnr of September 2008, which has been appealed by GSI, GSI is resisting the return of NICIL to its prior ownership position as a 38% shareholder (instead of the current 7%). During this time, Mr Badal’s control of GSI and its decisions to acquire assets of companies controlled by Mr Badal are considered to be with prejudice to NICIL receiving its fair share of dividends.
Instead, GSI’s cash flow (partly financed by bank overdrafts) has been used almost exclusively to provide cash flow to Mr Badal by GSI purchasing assets, based on directors’ valuations, from companies previously owned/controlled by Mr Badal, eg the purchase of assets of the now defunct National Edible Oil and Fats Inc (a company owned by Mr Badal) which are now idle, and most recently the acquisition of the assets of the Popeye’s franchise.
Noteworthy is that while the annual sales of GSI have more than quadrupled in the last 10 years now standing at G$4.7B in 2007 vs G$1.2B in 1999, Profit after tax was G$106M in 1999; whereas it was G$38M in 2006 and G$99M in 2007. At best, the profitability has relatively declined.
Additionally, the dividends paid out have been almost negligible. Are we to believe that GSI is so poorly managed that the rate of profit has decreased over 10 years but sales revenues have increased over 400%; or is there another reason?
We know that part of the cash flow has been used to acquire interests previously owned by Mr Badal. While a number of these transactions are disclosed in the accounts, it is unclear what the rationale for these transactions was.
Maybe one possible explanation for the company’s low profitability, and therefore of grave concern to NICIL, is the payment of management fees to and purchases from a company incorporated in Trinidad with the same name of Guyana Stockfeeds Limited.
This issue probably dwarfs the other related party transactions. This Trinidad registered company is listed as a related party of GSI (Guyana) but GSI has no shares in thiscompany. Based on this listing in the financial statements of GSI, we have to conclude therefore that the Trinidadian company is owned and controlled by Mr Badal. As a shareholder of GSI, we are putting the following questions to Mr Badal: Why in 2007, did GSI pay over G$1.1 B for purchases from this Trinidadian company? Where is the transparency? Who are the auditors of this foreign company and are the audited financial statements available for inspection? Why is this company not a subsidiary of GSI (Guyana)? Is it at least not an abuse of the goodwill of the name of Guyana Stockfeeds Inc in Guyana and around the Caribbean? How can the minority shareholders of Guyana Stockfeeds Inc know what is the true nature of the large cash transactions?
So for the record, Mr Badal is correct to state that it is GSI that is the party to the legal actions and not Mr Badal personally. He is also correct to state that he did not acquire the assets of NEOCOL but rather the assets of the privatised NEOCOL, which were acquired by Mr Badal in 1997 through his own similarly named company NEOFI.
With respect to Popeye’s, we are not privy to details about its financial performance other than what is disclosed in GSI accounts. We therefore cannot comment on whether this new asset of GSI is profitable or not. But we believe that the substance of our concerns is quite legitimate which is why the court ruling of September 2008 was entirely in support of NICIL/Government; it is also why an interim injunction was recently granted by Chief Justice Mr Ian Chang, SC on April 7 in favour of NICIL preventing GSI from paying out dividends (of which NICIL would receive only 7% instead of 38%) and why the court has ruled that related party acquisitions and investments between Mr Badal or his companies and GSI should not occur.
We look forward to Mr Badal clarifying all of these related party transactions to the court and appropriately disclosing which party is benefiting from these transactions. We hope that GSI has the assets to make whole NICIL’s rightful entitlements when these matters are finally concluded.
Yours faithfully,
Marcia Nadir-Sharma
Company Secretary
NICIL
