The Industrial Development Corporation (IDC) is conducting a forensic audit of complaints lodged by losing bidders to acquire ailing sugar producer Tongaat Hulett.
Tongaat was placed in business rescue in October last year; in July Tanzanian sugar company Kagera was named as the preferred strategic equity partner in a deal believed to be worth R3bn-R4bn.
Subsequent to that, Terris Consortium, which includes Robert Gumede’s Guma Investments, sent letters of complaint to the IDC and the business rescue practitioners (BRPs), demanding answers on why Kagera was selected even though it did not have the required funding.
The IDC has been providing post-commencement financing for Tongaat to run its operations until the completion of the business rescue process.
Terris also complained about the conduct of the IDC and its officials during the rescue process.
This week, it emerged that another losing bidder, a Mozambican sugar producer, has also raised objections and wants to resubmit a revised an offer
IDC head of corporate affairs and spokesperson Tshepo Ramodibe said on Friday that “in line with the IDC’s commitment to ethical business conduct, and as a matter of course, public complaints and allegations will be investigated”.
He said the IDC intends to “finalise a forensic audit at the earliest”.
The BRPs — Peter van den Steen, Trevor Murgatroyd and Gerhard Albertyn of Metis Strategic Advisors — did not respond to Business Times questions about the Mozambican company’s complaints and the IDC’s forensic audit.
Instead, they reiterated previous comments that bidders were evaluated in line with detailed criteria. “We understand that losing bidders are disappointed. However, they were given multiple opportunities to improve their offers if they wished to do so,” the BRPs said.
They said that throughout the process, which ran from February to June 2023, all bidders were provided with updates and guidance on improving their offers before the end of the process.
Sources close to the losing bidders said the IDC team will hold discussions with all complainants and the BRPs.
The most important outcome will be the survival of growers’ operations and the protection of the livelihoods they sustain
— SA Canegrowers CEO Thomas Funke
The BRPs have since extended the deadline for the publication of the company’s amended business rescue plan to the end of October from the end of September.
A source said there is suspicion that Kagera is struggling to secure funding, hence the extension.
Kagera has applied for funding from the IDC, a move that irked Terris as it believes that the BRPs breached their own processes by selecting Kagera without the company having provided proof it had the requisite funds.
Part of the condition was that bidders should provide confirmation of their “ability to fully fund the transaction” by “submitting 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”, reads a letter sent to the bidders in March.
Ramodibe said Kagera’s application is still being processed. “The application is dependent on a sound business viability case and is also still subject to the IDC’s decision governance process,” he said.
Kagera has not responded to repeated requests for comments.
The BRPs said the deadline extension for the publication of the amended plans does not affect the current workstreams or the length and cost of the business rescue process.
“The extensions do not indicate anything untoward and will provide additional time for the conclusion of the sale transaction(s) relating to the preferred strategic equity partner and for the incorporation of transaction information into the plans.”
In addition, it will allow the BRPs to specify the recoveries and expected distributions to the various classes of creditors of the companies. The court proceedings relating to Tongaat’s payment obligations to the South African Sugar Association are continuing.
Last month Terris made a request for the BRPs to restart the process of selecting a strategic partner as it believes that the process has been “tainted by the acceptance of an unfunded deal in breach of clause”, according to a letter sent to the BRPs.
The BRPs said previously in response that they “are constrained by circumstances from reopening the SEP [strategic equity partner] tender process”.
The survival of Tongaat is critical to thousands of jobs in KwaZulu-Natal, where it is headquartered, and in Southern Africa as it has assets in Zimbabwe, Botswana and Mozambique.
SA Canegrowers CEO Thomas Funke said recently that “the organisation hopes that the takeover of Tongaat will be a success for the sake of our members and the workers who rely on our industry”.
He added: “The most important outcome will be the survival of growers’ operations and the protection of the livelihoods they sustain. We want to see all the mills continue to operate and improve the efficiency of the vital service they provide to the growers on the north coast of KwaZulu-Natal who rely on them.
“This is not only imperative for the growers and their workers, but also for workers at the mills and throughout the value chain, as well as the local economies of the rural communities within which the mills operate.”
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