Sugar producer Tongaat Hulett, which is in business rescue, has resumed paying the statutory sugar levies from April, it said in a statement on Wednesday.
On Tuesday, Remgro’s RCL — the owner of Selati Sugar, along with the Yum Yum, Piemans, Ouma and Nola brands — issued a trading statement warning of a 30% profit drop for the year and in part blaming Tongaat’s nonpayment of levies, which meant it had to pay in an extra R234m.
The levies, paid to the SA Sugar Association (Sasa) by all sugar cane growers and millers, form part of the complex redistributive sugar industry that produces more than locally required. The levy subsidises millers that export excess sugar at a loss and ensures all farmers get the same price per tonne of sugar.
Tongaat did not pay the levies from November to March, arguing that the business rescue process and Companies Act allowed it to stop immediate payments as it tried to save the business from liquidation.
Millers RCL and Illovo, as well as 20,000 sugar farmers represented by the Cane Growers Association, were hard hit and outspoken about its nonpayment — as it meant they had to foot the bill to the tune of about R1.4bn.
Gledhow, a miller in Stanger also in business rescue, has not paid levies either, which meant millers needed to cover their unpaid contributions too.
RCL and the cane growers argue as the levy is statutory payment like income tax it should be paid regardless of the suspension of other payments during business rescue.
Tongaat, which owes at least R10.2bn to creditors, filed lengthy papers in April asking the Durban high court to rule that it does not have to pay outstanding levies immediately. It warned they could lead to business rescue process failing, which would be “catastrophic”.
Tongaat said in court documents if it has to pay government levies in full first, then the state is given unfair preference over other creditors — who wait for payment and only get some of what is owed.
“It is irrational and arbitrary to permit creditors to claim immediate payment of a debt owing to them merely because those creditors are organs of state.”
In its business rescue plan documents released in May, it has argued the sugar industry redistribution mechanism penalises “oversellers” such as itself that have to pay in extra for processing extra sugar, while millers that produce less benefit from the levy. It says the industry needs to be restructured and the levy phased out for sustainability.
Tongaat issued a media statement on the resumption of its levy payment from April on Tuesday and also told the market that its post-commencement finance had been extended.
Finance from the Industrial Development Corporation was provided after it went into business rescue, and this allowed it to complete the summer milling, pay farmers for cane and do overdue maintenance. However, the finance facility was expiring on June 30. It has been extended until July 21 while Tongaat waits for approval for longer-term funding.
Tongaat, which produces a quarter of SA’s sugar, is up for sale, and according to the business rescue plan has eight potential bidders.
All final and binding bids had to be submitted by the end of June.
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