In a sign that investors are not convinced about Tongaat Hulett’s turnaround strategy, the agri-processing company’s share price crashed by two-thirds on its first day of trade on the JSE after a seven-month suspension.
Shareholders, who had been prevented from exiting the company since June, reacted to its return to the market by pushing the shares down 67% to a record low.
The company, once one of the country’s most recognisable blue-chip stocks, has lost about R13bn of value since March 2018, weighed down by lacklustre financial markets and later allegations of irregular accounting practices.
In one of SA’s biggest scandals since Steinhoff disclosed accounting fraud in December 2017, the 127-year-old group, one of the biggest landowners and employers in KwaZulu-Natal, asked the JSE to suspend trade in its shares after an investigation flagged accounting practices that meant its statements could not be relied on.
Analysts said investors had been itching to exit a company weighed down by debt of about R13bn. After Monday’s crash, Tongaat’s shares were valued at just R648.5m.
"It makes sense because there are many shareholders that have been waiting for the opportunity to part ways with Tongaat," said Mergence Investment Managers investment analyst Lulama Qongqo.
"The company has a difficult task ahead of them — to turn the business around with a multitude of external headwinds.
"I am sure the market hopes the business will remain a going concern and be profitable again but hope is not a strategy."
She said that because many shareholders had been scared off by the Steinhoff International accounting scandal, they preferred to watch from the sidelines. "Shareholders are trying to be prudent with their capital by minimising exposure to corporates embroiled in accounting scandals."
Unethical practices
Tongaat, which intends to cut its debt by at least R8.1bn by March 2021, is planning to raise R4bn from shareholders in order to reduce the debt, though it still has not fully disclosed the extent of the unethical practices within the company. It has not made public the full PwC report on the scandal, only releasing a summary of key findings in November 2019.
Tongaat should take legal action against the people responsible for the company’s woes and should also publish the full PwC report "because shareholders are still in the dark for the most part", Qongqo said.
Tongaat has said that it would take legal action against implicated individuals and has referred the matter to the National Prosecuting Authority.
Ron Klipin of Cratos Asset Management said existing and potential shareholders had "lost confidence in management and need to see what the new management can achieve in terms of a turnaround".
Chris Logan of Opportune Investments said the sell-off was inevitable because of the "stark reality" of the planned capital raise and its debt.
Tongaat’s share price ended the day with a 64% loss at R4.80, having earlier reached R4.31.
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