Tongaat Hulett’s business rescue practitioners (BRPs) have shrugged off a new offer for the embattled sugar company, saying that they have a legal obligation to proceed with the plan that was approved by creditors.
Last week Business Times published an opinion article by independent agriculture economist Kobus Laubscher, who spoke of a proposed R8bn capital injection for Tongaat that he said was a viable alternative for shareholders.
In January Tongaat creditors approved a rescue plan by Vision Group, which comprises businessmen Robert Gumede and Rute Moyo.
On Friday, the BRPs confirmed in a Sens announcement that an “alternative proposal” had been received, but they were “legally precluded from considering, proposing and/or adopting same in any manner or form” as they were obligated by the Companies Act to implement the approved rescue plan.
They said they had “no reason to believe” that the Vision plan was “not capable of substantial implementation and are advancing all work streams required to achieve substantial implementation thereof”. The Sens notice said the adopted plan remained binding on all affected parties. The Competition authroties have also approved Vision's takeover of Tongaat.
There is speculation that the new proposal is from Mozambican group RGS, which was one of the final two bidders for Tongaat. But RGS, which had offered R8bn, pulled out on the eve of the creditors meeting at which Vision’s plan was approved, accusing the BRPs of being “patently biased in favour” of the proposal from Vision. The BRPs have denied the charge.
In April Vision opened a fraud case against RGS, accusing it of having submitted a forged bank letter claiming it had R2bn to buy the company.
At the time of going to print, RGS had not responded to questions from Business Times as to whether it was behind the “alternative proposal”. RGS produces a range of consumer products spanning sugar, tea, maize and flour.
Laubscher described the offer as a 'significant lifeline' that could save Tongaat from potential liquidation
In his article last Sunday, Laubscher said the R8bn offered by the new bidder would fully settle the claims of creditors, including the R550m statutory claim by the South African Sugar Association for outstanding levies. A further allocation of 10% of the share capital would remain in the hands of the current shareholders, four times the value offered by the Vision consortium, Laubscher said. He described the offer as a “significant lifeline” that could save Tongaat from potential liquidation.
Tongaat’s shareholders will meet on August 8 to vote on Vision’s plan, including a debt-to-equity swap of about R5bn of Tongaat’s current debt. This is a portion of the debt Tongaat owes the bank lender group, which has been acquired collectively by Vision.
The BRPs said in a statement earlier this month that the transaction, which essentially strengthens Tongaat’s balance sheet, was a material step in implementation of the approved business rescue plan. Successful implementation of the equity subscription could enable the company to remain on the JSE, with current shareholders becoming minority shareholders.
“In the event of the shareholders rejecting the equity subscription, a sale of assets will be pursued. It is also possible that a potential mandatory offer, on terms acceptable to Vision, could result in minority shareholders being bought out and then Tongaat being delisted. The first step is however to contemplate the equity subscription, which is what the currently approved business rescue plan contemplates.”
Tongaat faces liquidation should all the options fail, the BRPs warned.
“This will have a number of significant effects on creditors, stakeholders in the market, the competitive dynamics of the South African sugar market as well as animal-feed industries, and the public interest broadly,” they said.
“The liquidation would disrupt its extensive supplier base, significantly comprising black-owned and small enterprise suppliers, further exacerbating economic consequences and eroding valuable contributions to the country’s fiscus and GDP.”
The BRPs said Tongaat makes significant payments to growers, particularly benefiting more than 15,000 black farmers and co-operative members. But in the event of liquidation, these crucial relationships and livelihoods would be jeopardised, harming sugar cane sourcing and the empowerment of local communities.
According to Laubscher, the local sugar industry is worth in excess of R18bn a year and Tongaat’s fate will directly affect some 20,000 sugar cane growers in KwaZulu-Natal.
The company was placed in business rescue in October 2022 after its funders pulled the plug when it emerged that key former executives had allegedly manipulated accounts for years. At least six, including former CEO Peter Staude, ex-CFO Murray Munro and an external auditor, have been charged in connection with corporate fraud amounting to R3.5bn. Tongaat was choking under a R7bn debt pile and could not persuade funders to back its restructuring process.
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