Tolaram faces foggy future

  • 1999-10-07
  • By Benjamin Smith
RIGA - One of the great successes of Latvian privatization filed for
bankruptcy Sept. 29, illustrating just how tricky the road to a
market economy will be for some of the biggest companies left over
from the Latvian Soviet Socialist Republic.

Tolaram Fibers, which operates the gigantic Dauteks textile plant in
the eastern city of Daugavpils, passed into the hands of an
administrator appointed by the Latgale district court last week, more
than two months after the factory announced a "month-long" shutdown.
The factory's 2,700 workers have been out of work since June, driving
unemployment to 20 percent in the region around Latvia's second
largest city.

The failure of Tolaram Fibers represents a setback for two
protagonists of Baltic privatization: the Singapore-based Tolaram
Group, which operates four manufacturing concerns in Latvia and
Estonia, and the World Bank-backed International Finance Corporation,
which opened offices in the three Baltic capitals last year.

"The investment [in Tolaram Fibers] should and must be done," said
Roger Handberg, the Swede who heads the IFC's three-person Riga

Daugavpils has a skilled work force and a tradition of synthetic
textile work dating back to the early 1960s, he said. "What you need
is the support of a good, strong owner."

Handberg thought he had found just such an owner in the Tolaram
Group, which operates primarily textile plants in Asia and Europe.
Tolaram acquired 91 percent of the Dauteks factory in 1997 from the
Latvian government. In January, 1999, the IFC agreed to buy a small
stake in the company by way of $5 million in new stock, and to extend
a $15 million loan.

The IFC money, which was aimed at modernizing the plant, was
contingent on a $10 million investment from Tolaram Singapore,
Handberg said. Tolaram would have represented the IFC's largest
investment in Latvia, and one of its largest investments in
manufacturing anywhere in Europe.

Then the Tolaram Group turned up with empty pockets. Tolaram Group's
Baltic chief, Urmas Reimand, blames the slumping world market for
textiles; Handberg blames the Asian financial crisis, followed by the
collapse in the Russian export market.

And when Tolaram withdrew its support, the deal with the IFC fell
through. Now, with the winter approaching, Handberg foresees hardship
for the estimated 25,000 people who were indirectly dependent on the

"Hopefully we can do it the capitalist way," he said, "but it could
end up being renationalized."

And even Handberg, a professional privatizer, admits that a state
takeover might be preferable to the crisis winter could bring to the
Daugavpils workers.

"Saving a region is worth taking a step back before we take one
forward," he said.

Tolaram's Reimand said he had not yet heard any proposals to
nationalize the company.

"We just need to take some time out to put together a new financial
package," he said. Latvian law establishes a 90-day period following
bankruptcy, during which an appointed administrator may rent the
plant out in order to keep it running. The deadline for proposals was
Oct. 6. The original owner, Tolaram, is eligible to rent the plant,
and is the only company so far to submit a proposal.

"There are negotiations, but nothing solid yet," said the IFC's
Handberg. Reimand, for his part, is concerned that investors will
wait until Tolaram is forced to liquidate its assets, something he
has promised creditors will not happen.

"For us, the only option is to put together a rehabilitation package.
Creditors will sooner or later get paid," he said.

When the plant shut its doors in June, Unibanka called back $7
million of a $12 million loan. Reimand hopes that the bank will
re-extend the full $12 million credit line.

The Latvian government has also authorized the privatization agency
to extend Tolaram a $6 million dollar loan in case of "extreme need."

The situation depends in large part on the situation of Tolaram
Fibers' workers, who have promised to keep a low profile until bids
to take over the plant were scheduled to be received on Oct. 6.
Workers took to the streets in Daugavpils and Riga in September,
demanding their jobs back and government support of the plant.

But the plant's trade union chairman, Vladimir Novikov, told the
Baltic News Service that renewed demonstrations could begin as early
as Oct. 8, in hopes of getting the plant back on line before winter.