The R3.5bn fraud case against former Tongaat Hulett executives has been postponed to June, to give the state time to firm up racketeering charges to be brought against the accused, who are implicated in the country’s largest accounting scandal since Steinhoff.
The sugar giant, which has also been in a tug-of-war with a consortium of shareholders over a controversial proposed R4bn rights offer, is awaiting the outcome of an investigation ordered in March by the Takeover Special Committee (TSC) that could see the controversial exemption awarded to Magister Investments taken off the table.
If the rights issue is cancelled, Tongaat will have to approach shareholders and restructure a new rights offer or find a new way to raise R4bn.
Former CEO Peter Staude, former finance director Murray Munro, former head of Tongaat’s property arm Michael Deighton, former executives Rory Wilkinson, Kamasagrie Singh, Samantha Shukla, and Deloitte auditor Gavin Kruger made their second appearance in the Durban Specialised Commercial Crimes Court on Monday.
The court had in February granted them R30,000 bail each, with strict conditions.
The executives face about 24 charges combined, of fraud amounting to R3.5bn, contravening the Financial Markets, Companies and Prevention of Organised Crime acts.
The amount of R1.5bn of the R3.5bn fraud was in relation to sales agreements that were backdated, while R2bn related to sales that were not recognised in line with the accounting policy.
In a precedent-setting move, Kruger, who was a registered auditor and engagement partner at Deloitte, was charged with contravention of the Auditing Profession Act, becoming the first auditor to be charged under such circumstances.
The magistrate postponed the matter and ordered the suspects to appear again on June 2 “for the state to update the court on the application process for racketeering charges to be brought against the accused”.
“The state can add charges any time before an accused pleads,” KwaZulu-Natal director of public prosecutions advocate Elaine Zungu told Business Day, adding that the state was not buying time.
“There is sufficient evidence implicating the accused”.
The criminal charges follow the appointment of PwC in 2019 by Gavin Hudson, who replaced Staude as CEO, to investigate accounting practices at the sugar producer and property developer, which uncovered widespread irregularities.
Vowing to co-operate with law enforcement “to ensure that those responsible for the historic mismanagement of Tongaat Hulett are held accountable,” Tongaat said it closely following the developments in the National Prosecution Authority’s legal process.
Tongaat has filed a R450m civil claim against some of its former executives and is seeking an order declaring them as delinquent directors as part of its strategy to hold accountable those implicated in its near-collapse after an almost R12bn overstatement of its financials over several years, which resulted in an eventual crash of the share price.
The sugar giant has been under pressure to honour its debt commitments and in 2021 proposed a R4bn rights offer, R2bn of which would be underwritten by Magister Investments.
Internally, the company has been at loggerheads with some shareholders over the potentially dilutive capital raise that could see the Mauritian-based company run by Hamish Rudland, whose brother Simon operates Zimbabwe-based Gold Leaf Tobacco, take a majority stake in the company at a bargain.
Should existing shareholders not buy up the new shares, Magister, which owns less than 1% of Tongaat, could end up with a stake of more than 50%.
In SA, if a shareholder acquires more than 35% of a company’s shares they must make a mandatory offer to every shareholder to buy the whole company.
Magister’s exemption allows the company to bypass this.
More than 77% of shareholders, the Competition Commission and the Takeover Regulation Panel have given the Magister exemption the go-ahead.
But a final hurdle remains as investigators must probe whether a firm called Betelgeux Investments, which bought 2% of Tongaat’s shares during this period, is in fact related to Magister.
Should the firm owned by Adamjee Group Enterprise, a Pakistani company and partner of Gold Leaf Tobacco, be linked to Magister, the exemption will be nullified, blowing the entire deal out of the water.
Tongaat Hulett’s share price fell 3.55% on Monday to trade at R3.53. The sugar major’s share price has fallen by more than a third in the year to date and shed 96.94% in value over the past five years.
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