The market was caught off-guard yesterday by the surprise announcement that troubled, debt-laden Tongaat Hulett – the sugar and property group, with a legacy of 130 years under its belt – had entered business rescue after its lenders gave the cold shoulder to additional funding.
The board has appointed Trevor Murgatroyd, Peter van den Steen and Gerhard Albertyn of Metis Strategic Advisors as the business rescue practitioners of Tongaat.
It said in a statement yesterday that its company’s debt levels at R6.6 billion remained well in excess of what could be serviced and that delays experienced in the recapitalisation had worsened the situation.
“The South African lender group has informed the company that in all of the circumstances of the restructuring plan, they are unable to support the restructuring plan or to provide the additional funding required. Consequently, the repayment date of the borrowing base facility will not be extended,” said Tongaat.
Until this point the South African lender group had remained supportive of the company and had worked constructively with management over the past three-and a-half years to assist the company in addressing its liquidity constraints. To assist towards a R1.5bn working capital shortfall, the lenders advanced a new short-term borrowing base facility of R600 million on July 29, 2022, which was now due for repayment.
After Tongaat was implicated in an accounting scandal in 2019, the firm was put under new management with a turnaround plan. It was banking its future on a recently approved recapitalisation plan after its R4bn right issue with the controversial Rudland family, through Magister Investments, went south.
“The extent of the challenges faced by the company and its current strained financial position are well publicised and arose from years of high and increasing debt levels, alleged financial misstatements and historic mismanagement under previous leadership. These factors have resulted in the loss of significant value for shareholders,” the firm said.
Without the required additional funding, and an extension of the repayment date of the borrowing base facility, and having taken extensive legal advice, the board said it had determined that Tongaat was facing circumstances constituting “financial distress“ and decided to enter business rescue.
Business rescue is a legal process aimed at facilitating the rehabilitation of a financially distressed company that aims to proactively protect businesses, jobs, creditors and other stakeholders. It is not liquidation which involves the process of selling off a company’s inventory, typically at a big discount, to generate cash.
Tongaat is a major regional sugar producer with operations in Zimbabwe, Botswana, Mozambique and South Africa. With more than 26 000 employees, it also provides a livelihood to more than 20 000 cane growers.
If the firm fails the process, the next step is liquidation, with dire socio-economic consequences for South Africa and specifically livelihoods in KwaZulu-Natal.
Chris Logan, a shareholder activist and Opportune Investments owner, said the news that Tongaat Hulett was being placed in business rescue was “very sad and a bolt out of the blue for shareholders”.
In July, Tongaat’s shares were suspended on the JSE and the company last month had raised the possibility that if lenders accepted the restructuring plan, it could be relisted on the JSE.
Logan, who sold his Tongaat shares a while ago, said: “Shareholders thought it was just suspended. It is very disappointing for shareholders who had thought that the firm would be relisted with a viable debt restructuring plan.
“The South African sugar operations are touched by this. No one know what the future will be,” he said.
Anthony Clark, an independent trader at Small Talk Daily, said: “I’ve never followed the sugar companies. The volatility and the fact that the world is either in a surplus or a shortage of sugar depending on weather fluctuations means it is very unpredictable.
“Many sugar companies such as TSB Sugar and Illovo were taken out and the last man standing was Tongaat. It is predominantly a land company and then we learn there was fraud on the go.”
He said the question was now who would want to pick up a debt-ridden company given that its main asset, the starch business, was sold of a while ago, and the land business was not as palatable as it used to be given the strife and economic situation in KwaZulu-Natal.
“I was told yesterday that KZN was falling apart in terms of governance and infrastructure so why would you want to buy large tracts of land in Durban, given what is going on in the province.
“So as I see it right now, while Tongaat has some very attractive interests it is a province that is currently persona non grata, in an area that is prone to volatility and a product (sugar) that is easily available to import.“
Clarke’s comments come hot on the heels of Moneyweb reporting this month that construction firm Calgro M3 had decided to exit the province due to construction mafia and “lots of issues that impacted various activities”.
BUSINESS REPORT