ARN

EDITORIAL: Credit where credit's due

It was the worst-kept secret in the business that CHA was on its last legs, and last week the ANZ bank moved in to end the plight of what is a ravaged version of a once-great distributor.

CHA is rumoured to owe the ANZ Bank in excess of $1 million, but the financial institution is not the largest creditor. My sources suggest the outstanding debt to Toshiba is in excess of $7 million. They also indicate Acer is probably third in line with around $1 million owing, and which it is unlikely to see very much of.

After that, the list of creditors is believed to extend to just about every vendor that the company has distributed for in the last six months.

So what happens now? At press time, the appointed receiver at Ernst & Young was not going to draw any conclusions before he had been through the company's state of affairs thoroughly. It could be sold as a going entity, or closed down and assets sold off.

Over the last few years the company had built up - with the help of a number of acquisitions - and the receiver would not rule out some of those buys being sold back as regional operations. He also indicated that discussions were being held with several potential buyers interested in acquiring the whole operation.

The reality is, however, that CHA's cashflow situation appears to have deteriorated to the extent where the only remaining viable line of business was its multi-million dollar monthly Toshiba trade. The question has to be asked: What assets are left to sell?

Most of the company's creditors would have known that this was coming, and many I spoke to last week expressed surprise that this had taken so long.

My sources indicate that Ingram Micro will pick up CHA's Toshiba notebook business and that Cellnet, the global mobile phone distribution company that is now backing IT Wholesale, has also expressed interest. In the end, whoever picks up the agency is unlikely to have to pay anything for it.

Toshiba wasn't returning my calls last Friday, but that large line of credit it has been feeding to CHA is most likely to turn from a bad debt into a serious headache.

I think it may end up being a test of how good the mobile computing organisation's debt insurance is.

It has been a sad slide for CHA from lofty heights in late 1999 as it made acquisitions of regional players around the country and signed new partner arrangements with leading vendors in the mobile computing arena.

A word search on "CHA" via ARNnet's extensive archive [see the search window on the home page at www.arnnet.com.au] makes interesting reading.

There was a marvellous tale of growth in 1999, and then a rash of bad tidings during the last 12 months as vendors ended relationships, touted buy-outs fell over and staff numbers were rationalised.

The difference between CHA and other largish distributors of the late 90s boom is that it was unable to secure solid financial backing, which meant that each month's ledger was a hand-to-mouth existence. Sustainable in a climate of economic growth, but fatal in recessed times.

Tech Pacific, Ingram Micro, Synnex and now IT Wholesale, for example, are all local operations of financially sound and strong global groups. This allows them to ride out market downturns and use its capital strength to get early settlement discounts. CHA, on the other hand, is believed to have been paying a premium to settle its accounts late, which is always dangerous turf to be treading in a tight-margin category such as notebooks.

Time will tell what tangible assets there are left from the empire that Roger Bushell built, but I suspect there will be a long list of past suppliers that have been, or are now being, burnt a little from CHA's demise. I also surmise that there is a handful that will feel a much worse blow from this latest chapter in the distributor's colourful history.