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CGM on verge of collapse

Staff Reporter

MASERU — China Garments Manufacturers (CGM), the company that received a M30 million bailout from government in 2008, is on the verge of collapse.
The Sunday Express can reveal that orders from the United States, its major market, have dried up.
Confidential documents seen by this paper reveal that the company’s production has dropped by more than half since last August.
With very little production going on at factory, the company’s profits have plunged in the past nine months.
It is also facing serious cash flow problems and creditors are now threatening to stop supplies until the company pays its debts which sources say run into millions of maloti.
Highly placed insiders say the company has been making huge losses since last August and has had to survive on huge cash injections from its China-based shareholders.
But the shareholders, the insiders say, are worried that they might be “pouring money into a bottom-less pit”.
The shareholders, the source added, are also worried about the Lesotho Revenue Authority (LRA)’s ongoing investigations in the company’s tax issues.
The LRA is investigating allegations that the company has been evading tax for the past 24 years by paying salaries for expatriates into their foreign accounts.
There are also suspicions that CGM could have externalised millions of maloti through front companies based in Hong Kong.
It is estimated that the company owes M300 million in unpaid taxes to the LRA.
The LRA has already interviewed senior executives at the troubled company and is now preparing to lay charges.
But while this probe has been going on the company has had to fight for its survival because orders have slumped and there is very little hope of a recovery in the near future.
This has triggered fears that 3 500 local and 250 expatriate jobs could be lost unless the company’s fortunes improve soon. Documents seen by this paper indicate that CGM Industrial, CGM’s flagship subsidiary, is the one that is in serious distress and haemorrhaging money.
Presitex, the other subsidiary, is also under the weather but the management and shareholders think its losses are manageable.
To break even CGM Industrial factory has to produce 220 000 garments per month but since December last year it has been producing at average 44 000 garments.
For instance, in December the company shipped out just under 70 000 garments.
The worst month was January when only 7 500 garments were shipped out.
In February 56 000 garments were shipped but in March that figure dropped to just over 44 000.
Senior officials who refused to be named said this has been the trend since August last year.
Levi Strauss, the factory’s major buyer, has cut its orders by more than half.
Gloria Vanderbilt, another brand that used to sustain the factory, has also pulled out. Although the management blames the global financial crisis for the low business, sources say the chief executive, Madhav Dalvi, has contributed to the company’s problems.
There are allegations that Dalvi, an MBA holder from India, has clashed with some buyers on where CGM should buy its fabric and other accessories to make their order. For instance, the source added, Gloria Vanderbilt pulled out after Dalvi refused to buy its fabric from its preferred supplier.
The same has happened with Levi Strauss which has started pulling out.
“Dalvi has been insisting on getting fabric from a particular supplier because he gets a fat commission for every purchase CGM makes,” the source said.
This paper has seen documents suggesting that Dalvi is getting commission from some fabric suppliers.
While orders have dried up some companies are also threatening to stop supplies to CGM over unpaid debts.
YKK Zipper, a Swaziland based zip making factory, is one of the companies that have threatened to cut supplies to CGM.
Coats Threads, a Durban based thread maker, is also owed substantial amounts. It’s the same story with suppliers of sewing machine parts in South Africa.
Dalvi has been making frantic efforts to source more orders to revive the company but buyers are reluctant.
Three weeks ago he went to the United States on an order-hunting trip but came back empty-handed, according to officials. “Buyers are now reluctant to deal with CGM after the way they have been treated,” said one of the officials with details about Dalvi’s trip.
“They told him they have nothing at the moment but they will consider CGM later,” the official said.
This paper can also reveal that the company is struggling to pay its expatriate staff.
Several employees interviewed this week said they had been told they will have to wait for two months before their salaries can be deposited into their foreign accounts.
“What we are getting now is the local part of the salary. They say the foreign component might come after two months because there is no money,” said one of the employees.

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