Tongaat Hulett shareholders have approved a planned rights issue to slash the sugar producer’s crippling debt, an outcome that could hand control of one of the stalwarts of the SA industry to a little-known Mauritius-based investment house.
The majority of investors gave the nod to proceeding with the highly dilutory rights issue, with Tongaat authorised now to increase its shares in issue 33-fold to 5-billion.
This will be underwritten by Magister Investments, an obscure investor in Southern African agriculture, whose links with the Rudland family have raised eyebrows. Shareholders also endorsed the appointment of Hamish Rudland as a director and representative of Magister on the board.
“We are very happy with today’s outcome and appreciate the robust shareholder engagement process and their firm support,” said Tongaat spokesperson Virginia Horsley. “This is a key step in securing the future of Tongaat and provides us with the mandate to further engage with shareholders to raise fresh capital to reduce our unsustainable debt levels.”
At least 20% of shareholders voted against the R4bn fundraising — not enough to scupper the deal, which needed at least 75% backing and had already secured conditional support from two of the company’s biggest shareholders, the Public Investment Corporation and PSG Group.
Tongaat shares fell 8.76% in afternoon trade on the JSE on Tuesday, underscoring the dilutive effect of the rights offer, which is more than four times its market capitalisation. There are also concerns among minority shareholders about the lack of transparency around the new strategic investor, Magister. The shares pared their losses to end 3.47% weaker at R5.29.
“I find it extraordinary that a company that is about to take control of Tongaat we know nothing about or no-one is prepared to talk about,” David Woollam, a shareholder and whistle-blower, said at the extraordinary meeting on Tuesday. “It’s ... wrong for a company of which we know so little to take over, and yet we are only prepared to take their cheque. That isn’t how we do business in SA,” Woollam said.
After the rights offer, Magister, which owns 0.15% of Tongaat, will receive a board seat for every 20% of the company that it owns, capped at 60%. It will also receive a fixed underwriting fee of 1.5%, or R30m.
Wealthy family
Magister is controlled by the Rudlands, a wealthy Zimbabwean family that has been an active investor on the Zimbabwe Stock Exchange, holding significant stakes in transport, agriculture and financial services companies.
Hamish’s brother, Simon, who survived an assassination attempt in Johannesburg in 2019, is co-owner of Gold Leaf Tobacco Corporation and a member of the Fair Trade Independent Tobacco Association.
Rudland family members already own 9.98% of Tongaat through a United Arab Emirates-registered company, Braemar.
Tongaat stood firm behind Magister, saying due diligence was done by PwC.
Horsley said Magister and Hamish Rudland had extensive and relevant expertise and experience in key sectors that complemented the company’s strategic focus areas, including agriculture, agro-processing, logistics and property.
“The board believes that Magister is a suitable investor,” said Horsley, adding Magister had provided the company with a bank guarantee to support its underwriting commitments.
Accounting fraud
The final details of the capital raise, such as the price, are yet to be finalised but the company is looking to raise R2bn-R4bn.
The executive leadership under CEO Gavin Hudson has managed to slash the group’s debt by 42% to about R6.6bn from R11.35bn. However, the group’s debt dwarfs the company’s market value, now only about R740m.
Tongaat, which produces about 43% of SA’s sugar and is one of the biggest employers in KwaZulu-Natal, is restructuring after the discovery of accounting fraud. Its former managers allegedly overstated profits and the value of the company’s assets. The debacle is SA’s second-biggest corporate scandal, surpassed only by the fraud discovered at Steinhoff two years earlier.
Its recovery efforts, which include selling off assets to pay down debt, were dealt a blow by July’s civil unrest, which hit profits and slowed down plans to rapidly sell off some of its more than R8bn in property.
Tongaat has launched legal and civil claims against former directors, and said on Tuesday a process of claiming against former auditor Deloitte was “well under way”.
With Karl Gernetzky
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