The National Prosecuting Authority (NPA) hopes to finalise investigations regarding Tongaat Hulett’s accounting scandal in early 2022, but there is no decision yet on whether to prosecute the former executives allegedly involved.
“The matter is one of the priority matters for the province and the progress thereof is being monitored,” KwaZulu-Natal director of public prosecutions Elaine Zungu said.
In SA’s biggest accounting scandal since Steinhoff disclosed fraud in December 2017, the sugar producer, which traces its roots to the 1850s, asked the JSE to suspend trade in its shares in June 2019 after an investigation flagged accounting practices that meant previous financial results could not be relied on.
Like Steinhoff, shareholders and employees of Tongaat have suffered in the aftermath, and the sugar producer’s shares have lost 90% of their value since mid-2019. This has left the former blue-chip stock with a market value of less than R1bn, even though its property portfolio alone is worth R8.5bn.
Both the Steinhoff and Tongaat scandals also shared an investigator — PwC — while Deloitte had been auditor for both of their books. The scandals have raised questions about how irregularities could be allowed to persist for so long, but have also drawn criticism over how long it has taken to bring those allegedly involved to court.
Chris Logan, founder and chief investment officer of Opportune Investments, said the case against the former Tongaat executives was “chicken feed” in terms of the amount of money involved.
Tongaat said on Monday a review of Deloitte’s role in the historical mismanagement of the company can only proceed when it has completed its audit of the group’s 2021 year, which is necessary to preserve the independence of the audit.
This had been expected to be concluded about end-August, but some items required to complete the audit remain outstanding.
“The board of Tongaat appointed a legal and regulatory committee to assess the approach and actions of the business relating to the findings of the PwC investigation, including this matter, and we will update our stakeholders fully the moment the process enables us to do so,” the company said.
“Tongaat Hulett’s board and executive committee remain committed to holding those responsible for historical mismanagement accountable.”
Crippling debt
“The case against former auditors who billed Tongaat R300m in fees since the fraud started should lead to a huge settlement, but Tongaat is less transparent [regarding] their claim against former auditors,” he said.
The company, which produces about 43% of SA’s sugar and is one of the biggest employers in KwaZulu-Natal, has also been battling to survive its crippling debt pile, which stood at a net R6.6bn at end-March.
News that the group will be tapping shareholders for as much as R4bn, wiped off more than a third off the value of Tongaat’s shares last week.
Tongaat said on Wednesday that it had reached an agreement with Mauritius-based investment holding company Magister, which has offered to spend as much as R2bn to underwrite the offer.
The amount of capital to be raised and the pricing of the equity raise are yet to be determined, but this will probably take place in the first three months of 2022.
Magister, which focuses on long-term investments in agriculture and logistics, could be left with a controlling stake in the sugar producer, with Tongaat saying it could then benefit from that company’s vast farming experience.
A PwC investigation identified 10 executives, including former CEO Peter Staude, who were allegedly involved in profit inflation. It concluded that there was a culture of deference within Tongaat that led to employees not questioning accounting practices.
Restate results
The PwC investigation identified practices that inflated profit, including revenue being recognised in earlier reporting periods than it should have been, as well as practices that inflated the value of assets, including its sugar cane.
The company has been forced to restate previous financial results, including for the six months to end-September 2018, which resulted in total assets decreasing by about R12bn, or 34%.
Other executives fingered included former CFO Murray Munro; the former MD of its Zimbabwean operations, Sydney Mtsambiwa; and former finance executive Sean Slabbert.
Tongaat has been struggling to regain the confidence of the market and deal with a crippling debt pile. It brought in former SABMiller executive Gavin Hudson in February 2019 to spearhead a turnaround.
Hudson told Business Day last week that civil cases against former executives were still in the hands of lawyers, but that they were expected to go to court in 2022. “The ball is definitely rolling,” he said.
Update: November 22 2021
This article has been updated with additional information as well as comment.
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