Tongaat Hulett says it is facing delays before a court hearing of its R450m civil claims lawsuit against former directors implicated in underhanded accounting practices, which brought the sugar maker to the brink.
It is a setback for investors who have watched helplessly as billions of rand in shareholder equity has been wiped out.
There have been no prosecutions in connection with the allegations of white-collar fraud at Tongaat. That failure shines a harsh spotlight on the National Prosecuting Authority (NPA), which is under mounting pressure to prosecute alleged perpetrators of corruption under the state capture project, as well as other high-profile skulduggery involving former senior executives of companies such as Steinhoff and EOH.
Tongaat expects full trials to begin in early 2023, with the delay due mainly to legal objections on “highly technical” grounds, it said on Tuesday. It added that it remains determined to secure a fair outcome for shareholders.
The survival of Tongaat, which is valued at only R751m on the JSE, has been in question since 2018 when allegations of accounting fraud surfaced, sparking a selling frenzy in the stock, which had been valued at about R16bn.
That came less than a year after Steinhoff shocked investors with disclosures of a hole of more than R100bn in its accounts, which turned out to be accounting fraud.
As with Steinhoff and EOH, the delay has put the capacity of the state to prosecute financial crimes speedily under greater scrutiny as SA waits for further findings from the Zondo commission of inquiry into state capture. The first part of the report has already flagged the role played by some major companies in enabling rent seeking.
The scandals have also raised questions about ethics and processes in the auditing and consulting professions, including for Deloitte, which served as auditor at Tongaat for decades.
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. Managers including former CEO Peter Staude had allegedly overstated profits and the value of assets.
The group said previously it expected its civil cases to go to court in 2022, while it is also eyeing the potential start of criminal trials as well, saying on Tuesday it believed a decision by the NPA was imminent.
The NPA has said previously it was hoping to finalise its decisions in early 2022.
“The Tongaat Hulett matter is receiving our attention,” KwaZulu-Natal director of public prosecutions Elaine Zungu said on Tuesday. “At this stage we cannot make any definitive comment on the matter and our decision,” she said.
Tongaat is still battling to regain the faith of the market and had a tough 2021. It was hit by civil unrest in July, which tore into its profits and hit its prospects for property sales in KwaZulu-Natal.
The group announced in December it wants to raise as much as R4bn through a rights issue, likely in the first quarter of 2022, which will solve its SA debt problem while keeping its sugar interests intact. Up to R2bn of this will be underwritten by Magister Investments, though the Mauritius-based investor in the Southern African agricultural sector has capped its ultimate shareholding at 60%.
Opportune Investments founder Chris Logan said this dilutory rights issue is highly questionable given the options still available to management, including further asset sales and some potentially easy legal settlements. “It’s extraordinary that they come with a highly dilutory rights issue that effectively facilitates a change of control without recovering that money from auditors first,” he said, referring to Deloitte.
“Steinhoff managed to do that in no time, and their former auditors didn’t audit the whole group, and it was a complicated fraud,” said Logan. “Tongaat was grade-one fraud.”
Engagements with Deloitte continue, Tongaat said on Tuesday. It will release a statement when it is in a position to do so.
Tongaat’s shares ended 0.71% higher at R5.67, having fallen more than 40% since November 17, when it flagged its proposed recapitalisation. The shares have lost about 90% in the past three years.
Correction: January 12 2021
An earlier version of this article incorrectly stated that it will take another year before a court hears Tongaat's civil claims, whereas the company had said previously it expected the matter to be heard sometime in 2022.
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