There is light at the end of the tunnel in the Tongaat Hulett saga, following a major development for the beleaguered sugar producer. A significant lifeline that could save the company from potential liquidation has been presented to the business rescue practitioners (BRPs), offering a more favourable outcome for both shareholders and creditors.
An interested party has proposed that an R8bn capital injection be used to fully settle the claims of creditors, including the settlement of 100% of unsecured creditors’ claims and about R550m to settle the South African Sugar Association’s statutory claim against it for outstanding levies. A further allocation of 10% of the share capital is to remain in the hands of the current shareholders, which would represent four times the value offered by the Vision consortium.
So, nearly two years after Tongaat was first placed in business rescue, all eyes will now be on the shareholders meeting on August 8. The Vision consortium, led by businessman Robert Gumede, has informed shareholders that they must either vote for its planned debt-to-equity swap, allowing Vision to gain control of the company, or face walking away with nothing.
However, key shareholders, including the Public Investment Corp, who will be at the meeting could prevent Tongaat being taken over by the Vision Group.
Uner Vision’s plan, shareholders’ stake in Tongaat would be reduced to just 2.7%, while Vision would retain R3.6bn of its debt in the company — making it unlikely that shareholders would actually see any returns on their stake.
Tellingly, despite announcing in January that its proposed plan for the company had been accepted, the Vision group has yet to make the necessary payments to cement its offer. Moreover, serious question marks remain over whether the Vision group has even raised the capital needed to fulfil its obligations and secure
Tongaat’s future.
The Vision plan would result in the consortium acquiring the sugar giant at a significant discount, while leaving dozens of unsecured creditors and small businesses hanging out to dry. Consider, for instance, that Vision has allocated just R75m for repaying unsecured creditors — more than 10 times less than the alternative proposal and translating to less than 5c in the rand.
So shareholders are not caught between a rock and a hard place – there is now a viable alternative of which the BRPs have been fully apprised.
In a circular distributed to shareholders earlier this month, Vision and the BRPs threaten that if this resolution is not passed, they will simply switch to Plan B without shareholder approval.
This would see the BRPs attempt to unilaterally sell all Tongaat’s assets to Vision or parties nominated by Vision. This, in turn, would risk the break-up of Tpongaat, bringing the 131-year-old company to an ignominious end and jeopardising thousands of jobs and livelihoods across KwaZulu-Natal.
The BRPs say this would result in shareholders receiving a nil return rather than retaining a 2.7% share of Tongaat. They warn that liquidation looms if the resolutions are not adopted, on the basis that there is no viable alternative plan.
Critically, this Plan B does not represent a lawful or competent business rescue plan. As a result, if shareholders were to vote against the debt-to-equity conversion, the BRPs would not be able to lawfully sell the company’s assets without a new business rescue plan being adopted. Furthermore, the sale of the assets will require shareholder approval, despite what the BRPs and Vision might claim.
So shareholders are not caught between a rock and a hard place — there is now a viable alternative of which the BRPs have been fully apprised.
South Africa’s 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. With so much at stake, it’s up to shareholders to vote with their conscience, stand up to Vision, and pick the best deal for not only themselves, but also for Tongaat’s creditors and employees, and the thousands of people dependent on the business.
• Laubscher is an independent agricultural economist
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