The fight for troubled sugar giant Tongaat Hulett is intensifying after the Terris Consortium — which lost out when Tanzanian company Kagera was selected as strategic equity partner (SEP) — called for the process to be reopened.
It believes the business rescue practitioners (BRPs) breached their own processes by selecting Kagera to buy Tongaat without the company having provided proof it had the requisite funds or could raise them.
Tongaat was placed in business rescue in October last year after its funders pulled the plug when it emerged that key former executives had allegedly manipulated accounts for years. The company was choking under a R7bn debt pile and could not persuade funders to back its restructuring process.
In July, Tongaat’s BRPs — Peter van den Steen, Trevor Murgatroyd and Gerhard Albertyn of Metis Strategic Advisors — announced the appointment of the Tanzanian sugar operation as the preferred SEP in a deal believed to be worth between R3bn and R4bn.
According to a letter the BRPs sent to bidders in March, one of the conditions was that they should submit “proof of funding and provide details of the funding arrangements in place to support your final offer, including sources of financing and the mix of debt and equity”.
Last week, Tshepo Ramodibe, head of corporate affairs at the Industrial Development Corp (IDC) — which has been providing post-commencement finance for Tongaat to run its operations until the completion of the business rescue process — said a funding application from Kagera for the deal was “under consideration”.
This rattled Terris, which wants the BRPs to restart the process of selecting a strategy partner.
A source close to the group said, Terris may either take "legal action against the BRPs for having breached their own rules by approving an unfunded offer, or submit a revised and better offer.”
— Terris source
The Terris consortium is made up of Guma, owned by South African businessman Robert Gumede; Remoggo, a Zimbabwean entity; Almoiz, a Pakistan-based agriculture business; and Terris Sugar, an investment company operating in the Cayman Islands.
It has sent letters of complaint to the BRPs and the IDC asking why Kagera was selected. “The process has been tainted by the acceptance of an unfunded deal in breach of clause 5.6 of your own process letter,” reads one of the letters, which Business Times has seen.
The consortium said the acceptance by the BRPs of an unfunded bid “is not only a breach of your own stated process but could be interpreted as reckless and not consistent with your obligations. It also puts unnecessary pressure on the IDC to support what we believe is an inferior bid.”
A source close to the group said, Terris may either take "legal action against the BRPs for having breached their own rules by approving an unfunded offer, or submit a revised and better offer.”
Kagera is said to have provided proof for only R700m. It has yet to respond to repeated requests for comment.
The source said that technically, Kagera’s bid should have been disqualified or reduced to match its proven equity.
But the BRPs are unfazed. In their response to Terris, also seen by Business Times, they said they “are constrained by circumstances, from reopening the SEP tender process”.
In response to questions, a spokesperson for the BRPs said: “Negotiations were entered into with the final two bidders with a view to them increasing their final offers and for them to confirm their best and final offer. After confirming with both bidders that their resultant offers were the best and final, the then-binding offers were adjudicated.
“We understand that losing bidders are disappointed. However, they were given multiple opportunities to improve their offers if they wished to do so.”
All bidders were provided guidance on improving their offers. “Kagera was selected based on the highest score out of the adjudication process. They were also the highest financial offer,” the BRPs said.
BRPs never responded to them regarding what the revised offer should be.
“We were willing to review our offer if you had confirmed the number to work towards. Further, if we had known that IDC funding support was available, we certainly would have competitively reviewed our offer, especially considering the cost and time we had gone into to conduct extensive DD [due diligence] and build a business plan [for Tongaat].”
Another issue of contention is the due diligence that the IDC conducted on Kagera weeks after it was selected as the preferred bidder.
Ramodibe said last week that the IDC “typically initiates due diligence to complement a funding application. In this case, a funding application and complementary due diligence could only be initiated after the BRP has announced the selected strategic equity partner.”
The due diligence was conducted on the IDC’s behalf by Bosch Holdings — which is also contracted to Kagera.
Ramodibe said the IDC appointed Bosch last year to advise on the post-commencement funding IDC provided Tongaat in December. “It is important to note that the consultancy is one of only two sugar industry consultancies. This scarcity is the reason for the likelihood of one of the bidders using them at some stage,” he said.
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