Sugar producer Tongaat Hulett will seek new buyers for its starch and glucose assets if its pending deal with Barloworld subsidiary KLL Group fails.
The pair are locked in a dispute after Barloworld attempted to exit the R5.3bn deal to acquire the sugar producer’s starch business. The industrial group expressed concerns about the impact of the coronavirus pandemic on the acquisition and said it could alter its value.
The deadlock comes as a setback for Tongaat, which has ambitions to pay down its debt pile. For the year to March 2020 it had reduced borrowings by more than R6bn from almost R13bn, the company said in its results on Friday.
On Friday both companies notified the market of KLL’s second material adverse change, a clause which permits buyers to walk away from a deal without penalty, should the value of a deal be undermined.
Tongaat, however, doesn’t believe that the starch business has experienced material change. The final and binding ruling is expected to be handed down on September 21.
CEO Gavin Hudson, who took the reins at Tongaat at the start of 2019, said: “In the unlikely event that [the Barloworld deal] works against us, we will look at finding a suitor for that. And we’ve had interest, unsolicited.”
The company, whose debt had ballooned to almost R13bn by September 2019, had ambitions to cut it down by R8.1bn by March 2021, by way of aggressively reducing capital expenditure, disposal of some assets and capital-raising initiatives.
Hudson said the company still has a big property portfolio that it can tap into for selling.
“We’re looking at either selling an equity stake into what one might call PropCo, alternatively selling individual parcels or larger parcels of land. We also have some smaller assets in the various businesses that we could consider selling, but these are not material,” he said.
Hudson has been spearheading the sugar processor’s management overhaul after the departure of former CEO Peter Staude, who was named in a PwC report that implicated nine other directors. The directors included former financial director Murray Munro, who left on health grounds, the company said at the time.
The report led the company to restate its accounts by almost R12bn. The company had overstated its assets by as much as R4.5bn and said it concluded certain land sales when it actually had not.
The company said on Friday it is forging ahead with civil and criminal cases against the executives implicated in the financial misdoings at the company.
Tongaat financial director Rob Aitken said the company is on course to issue summonses to the implicated executives.
“We’re progressing relatively well. From the civil side we’re looking to issue the summons in the next couple of weeks for those executives who were named, some of them, at least the SA based,” Aitken said.
“At the same time there is a criminal case that is being progressed and we’re expecting to receive some feedback in the next three to six months”, from the National Prosecuting Authority, he said.
The sugar producer released strong full-year results to March, an indication that its turnaround strategy is paying off.
The operating profit surged 491% to R3.3bn, from a previous R551m, while revenue grew 18% to R15.4bn.
Shareholder activist Chris Logan said the new management was doing a good job seeing it walked into a “diabolical mess” left by the previous management.
“It’s a bit of a long game given the predicament they are in with their debt, but they seem to be addressing it on multiple fronts with improving efficiencies, looking at assets sales and keeping a potential rights issue in reserve,” he said.
Tongaat's share price jumped 9% to close at R5.45 on Friday, giving it a market capitalisation of R736.4m.
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