Mozambican consumer and agricultural group RGS has withdrawn its offer for Tongaat Hulett, leaving only Robert Gumede’s Vision Group in the running to buy the business.
Creditors, which include banks, suppliers and the Industrial Development Corporation (IDC), will have to decide whether to accept the Vision consortium’s offer without a counterproposal at the crucial business rescue vote scheduled for Wednesday morning.
Sugar producer Tongaat, which employs about 2,500 South Africans, has been in business rescue for the past 14 months and urgently needs a cash injection to keep it afloat. The R2.3bn in funding provided by the IDC to keep it running will expire by end-February.
The remaining bidder for Tongaat is Gumede’s consortium, which includes Samancor Chrome owner Terris; Mauritian-based investment holding company Remoggo; and Almoiz Group, one of the largest agribusiness groups in Pakistan.
The other bidder was RGS, owned by the politically connected Gulamo family in Mozambique with interests in tea, sugar, farming and consumer goods.
RGS’s unexpected withdrawal from the race for ownership of Tongaat has changed the fortunes of the Vision group, which missed two deadlines in late 2023 to buy the lenders’ debt and to take over their majority vote on who could buy the business.
This was even as Vision told media in early November it had clinched the deal.
RGS wrote a letter to the business rescue advisers, Metis Strategic Advisors, on Tuesday afternoon withdrawing its offer at the 11th hour.
The group claimed that it was irregular that it should have to pay R2bn upfront to the group of nine banks, saying this was required before the transaction had even been given the go-ahead.
“In the normal course [an] M&A transaction for the acquisition of a business payment would only occur at or shortly after closing of the transaction.
“This is the only basis on which the board would be willing to proceed, but we understand this will not be acceptable to the lender group who require upfront payments to be made to them.”
Favour
It also accused Metis Strategic Advisors of favouring the Vision proposal to buy the group. Metis denied all allegations, including those of the upfront payments.
Despite missing two deadlines, Vision is now on track to buy the company in a debt-for-equity swap in which it has offered R4.1bn to bankers with another R3.6bn in debt to be restructured, and some repaid over time.
The process to save Tongaat has been fraught with many legal challenges, threats of court cases and even the disqualification of a buyer. Kagera Sugar was disqualified on rumours that it had used invalid documents from the IDC to show it had funding for the deal.
The vote on who could buy the business was first scheduled to take place on December 14, but was interdicted by the SA Sugar Association and RCL Foods over a fight about industry sugar levies.
Today’s vote was almost postponed again due to a new court application by RCL, which was unhappy with how Vision committed to pay outstanding sugar industry levies.
But the business rescue practitioners averted the court case on Sunday by negotiating with the sugar industry on behalf of Vision.
RGS blamed the business rescue practitioners for its decision, saying they had been bending over backwards to help Vision.
The business rescue practitioners “have consistently taken steps to place impediments in the way of RGS’s proposals and have been patently biased in favour of the proposals put forward by the Vision parties”.
The RGS board said it can no longer trust the business rescue practitioners and believes that they would work against RGS even if it won the bid.
The business rescue practitioners said that they “strongly refute the baseless allegations made in the letter that was directed at us. These allegations will be dealt with at the appropriate time.”
RGS said it expects legal challenges from Vision were it to win the bid, but did not explain why it withdrew at the 11th hour after taking part in the process for months.
It said its decision to withdraw is not one “the board has taken lightly, especially as RGS believes strongly that the RGS business rescue plan is the most advantageous plan for Tongaat”.
RGS said it had offered a fair price, which included R3.6bn to the lenders and R500m in working capital, with another R500m for outstanding sugar industry levies.
While the RGS letter accused the business rescue practitioners of leaking information to the media, Business Day’s experience has been that Metis has consistently avoided speaking to the media for more than a year to remain unbiased.
Exhaustion
The constant turmoil around Tongaat has affected many of its staff members in SA.
The two business rescue plans refer to the exhaustion of staff who had been working to save a company after R12bn in fraud was discovered in 2018.
“Tongaat Hulett is an organisation that has been subjected to multiple and continuous disruptions over about the last five years since the ‘accounting scandal’ became known. By the time business rescue proceedings commenced, the practitioners walked into an environment where the people were already exceptionally fatigued.”
In addition, much of the rural KwaZulu-Natal economy and more than 20,000 farmers rely on Tongaat.
RGS offered more money to unpaid suppliers owed R2.6bn and a greater commitment to try to avoid retrenchments than Vision had.
Vision declined to comment.
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