Peter Morton, with files from Carol Howes in Calgary. Financial Post. National Post, Canada. Friday, March 10, 2000
Fear of U.S. reaction has kept banks from lending to Commercial Consolidators for its Cuban operation
WASHINGTON - Michael Weingarten likes to call it the "bogeyman factor." The chief executive of Commercial Consolidators Corp. has carved himself a rather exclusive niche in Cuba by being virtually the only assembler and distributor of such high-end electronic products as televisions on
the island.
But he still has to pay 28% interest from private lenders because Canadian banks flatly refuse, he said, to lend him the money to expand his operations in Cuba.
"We get zero financing from Canadian banks because they are all worried about their investments in the U.S." says Mr. Weingarten. "That's the bogeyman factor."
In fact, the only conventional loan received by Canadian Consolidators has come from Ottawa's Business Development Bank, for $600,000, something Mr. Weingarten calls a "showcase" loan since it expects revenue of $42-million when its 1999 year closes this month. "Everybody is
afraid of what the Americans will think," he says.
The United States has had an economic embargo against Cuba for the past 40 years but the already cool relations became even more strained in 1996 when two private U.S. airplanes were shot down near Cuban airspace by Cuban jets. That led to the imposition of the Helms-Burton law that tries to
penalize non-U.S. companies operating on what was once U.S. property in Cuba prior to the 1959 revolution by Fidel Castro, Cuba's president.
There has been speculation the Helms-Burton chill has spread to Canadian and European banks with extensive operations in the United States. They are thought to be worried they may get swept up in Helms-Burton, which, among other things, can lead to massive lawsuits in the United States.
Four of Canada's major banks, Royal Bank of Canada, Bank of Montreal, Bank of Nova Scotia and Canadian Imperial Bank of Commerce, deny they have policies prohibiting commercial loans to Canadian companies operating in Cuba. "We don't have any specific provisions against lending in Cuba and
like any other loan, we assess things on their merits," said Jeff Keay, Royal Bank's senior manager of corporate media.
"We don't deal in that region so it's not an issue for us," said Joe Barbera, director of media relations for Bank of Montreal. BMO also owns Harris Bank of Chicago and recently expanded into southern Florida.
Bank of Nova Scotia also insisted it would do business with companies that have operations in Cuba but would not put itself at risk.
"We're not opening up ourselves because of the laws, the Helms-Burton laws in the United States, even though we were in Cuba for 53 years, because we have extremely valuable operations in the United States," Peter Godsoe, the bank's chairman, said at Scotiabank's annual meeting last
week in Calgary.
"There's some companies that are in a very big confrontation with the United States and we wouldn't want to be drawn into the confrontation for a relatively nominal profit."
CIBC did not respond to questions.
Concurrently, however, the administration of Bill Clinton, the U.S. president, has been slowly moving to normalize relations with Cuba, allowing shipments of food and medicine to Cubans (as long as they don't go through the Cuban government) and allowing charter flights from the United States to
Havana.
Even the uproar over Elian Gonzalez, the Cuban refugee and sole survivor of a 140-kilometre trip between Cuba and Florida, has not dramatically upset relations. While the debate rages over sending the boy back to his father in Cuba, the U.S. administration still permitted a major health
conference with U.S. companies to go ahead in Havana. A second conference on agriculture and food is planned later this year.
Mr. Weingarten, who listed Commercial Consolidators (formerly Balmoral Capital Corp.) on the Vancouver Stock Exchange in October, said he expects profit this year of $2.4-million from its Cuban operations, up from $1.1-million in 1999. The firm is in a joint venture with the Cuban government to
manufacture televisions with parts from Japan and South Korea. It also distributes Sony, Phillips and Sanyo products in Cuba under exclusive deals.
"But my profit would have been $4.4-million if I did not have to pay interest costs of 28%," he said.
The cash-strapped Cuban government is relying on local assembly to provide jobs and consumer goods to Cubans, meaning Mr. Weingarten can sell one of his locally made TVs for about $340 (US) compared with $440 for an imported model. And he added that some two million television sets will be
replaced over the next eight years in Cuba.
"We have $22-million in sales booked through to June," he said, adding that he is projecting a profit of $6-million on sales of $65-million during 2001.
Mr. Weingarten said he hopes to position the company, which also does business equipment and construction technology sales in Cuba, as the first in place when the inevitable day comes that the United States and Cuba normalize relations.
"But right now, it's unbelievable," he said. "Companies are frightened to do business there."
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