MICHAEL AVERY: Potential for rats in the Tongaat cane field

The next chapter in the tale of Tongaat’s painful fall from grace is set to come to a head at a hastily convened emergency general meeting scheduled for January 18, to vote on a highly dilutive rights offer that has several shareholder activists pointing to potential rats in the cane fields.

The rights issue will bring about a change in control without a mandatory offer, and Chris Logan of Opportune Investments says the management has not informed shareholders that there is a potentially huge claim against Tongaat’s auditors of 83 years, Deloitte, which would in effect nullify the need for the capital raise.

Tongaat said last week it is pursuing a claim of R450m against former CEO Peter Staude, former CFO Murray Munro and former finance executive Sean Slabbert, who was also a director of Tongaat Hulett Sugar SA. However, the claim against Tongaat’s auditors for more than R10bn in shareholder value destruction would dwarf this.

The scheme, which was published in the December holiday lull, is also highly prejudicial to minority shareholders as the proposal will see Tongaat’s authorised share capital increase 33-fold to 5-billion shares, issue shares pursuant to a partially underwritten rights offer and waive a mandatory offer by the controversial Rudland family, owners of Gold Leaf Tobacco. Gold Leaf’s illicit dealings were laid out in Tobacco Wars by former SA Revenue Service forensic investigator Johann van Loggerenberg. This will result in existing shareholders’ holdings being enormously diluted, possibly up to seven times their existing holdings.

Dave Woollam, the original whistle-blower on the Tongaat fraud, said the emergency general meeting should be postponed pending clarification on the likely recovery of the significant damages and negligence claim from Deliotte for the multiyear accounting fraud they failed to pick up — much like the Steinhoff claim against the same firm, which was settled quite quickly in that instance for R1.3bn.

Same address

Woollam said the rights offer is merely a disguised takeover by Mauritius-registered company Magister, which is owned and controlled by members of Zimbabwe’s Rudland family, without the checks and balances of a “fair and reasonable” process and minority protection rules.

Magister is represented by Simon Rudland’s brother Hamish, and while there is no direct link to Gold Leaf, the entrance of Ebrahim Ahmed Adamjee, who owns 2-million shares in Tongaat, points towards Simon and his partners being involved. Ebrahim has the same address as Betelgeux — 69 1st Road, Linbro Park — and Ebrahim and Betelgeux bought almost 5-million Tongaat shares on December 21. Ebrahim was until recently also a director of Betelgeux. Guess who Ebrahim is? Simon Rudland’s business partner in Gold Leaf Tobacco, which also operates out of Linbro Park.

 It is for these reasons that shareholders are calling for a better understanding of Magister, its connection to the Rudland family, the source of its funding and its value as a strategic shareholder in Tongaat.

Tongaat CEO Gavin Hudson is already under pressure from shareholders, who are unhappy with the slow pace of the operational turnaround. Tongaat remains a vital cog in the KwaZulu-Natal economic engine, with about 20,000 farmers and 400,000 people dependent on it.

Shareholder activist Harry Smit, described by some as SA’s version of Tyrion Lannister of Game of Thrones fame, fresh from his surprising victory at Ascendis, is now training his sights on Tongaat too.

“It must be remembered that the entire existing board, Hudson and [CFO Rob] Aitken combined, amounts to less than 0.16% of the entire shareholding of the company, despite having received some very generous bonuses over the past two, three years,” says Smit. “The total value of their shareholding is less than R1.3m, hence there is no incentive for them to preserve or protect the value of the very shareholders to whom they are responsible.”

Now is not the time for hasty decisions.

Is the red-hot used-car market at risk of overheating?

Some interesting directors’ dealings caught my eye last week. Shrewd capital allocator Chris Seabrooke offloaded 1-million Transaction Capital shares via his investment holding company Sabvest, raising almost R49m. Seabrooke has now disposed of half of his holding, adding to the 4-million Transaction Capital shares he sold last year in March and November, raising R142.3m.

This raises the question: has Transaction Capital’s valuation run ahead of itself since the WeBuyCars deal? Admittedly, the company built by Faan van der Walt and his brother Dirk is transforming the way South Africans privately sell and buy cars. Adding Transaction Capital’s finance and insurance nous to the mix, and David Hurwitz’s capital allocation prowess, it is an attractive formula.

But it looks like Transaction Capital needs to grow into its multiple. There is also concern that the used-car market cannot sustain its blistering growth, which was aided by a chip shortage due to supply chain crunches and a pandemic-induced fear of public transport, which has boosted demand for cars. That can’t last as supply chain pressures ease, and due to the shift to electric vehicles older petrol and diesel vehicles will increasingly lose their appeal.

Management gave a bullish outlook at the last results call (WeBuyCars will be consolidated for 12 months). Any execution disappointment such as delays in finance and insurance originated by Transaction Capital in WeBuyCars could bring the share price down in the short term. But therein lies the opportunity over the long term.

• Avery, a financial journalist and broadcaster, produces BDTV’s Business Watch. Contact him at badger@businesslive.co.za.