The business rescue practitioners (BRPs) of troubled sugar producer Tongaat Hulett headed into the Christmas break under mounting pressure as the government and the Industrial Development Corporation (IDC) delayed urgently needed funding to keep the company afloat.
A provisional liquidation launched at Durban’s high court on Thursday shows the desperate bid by the BRPs to remedy the liquidity crisis facing the group, which came to a head in September when it faced a shortfall of R500m.
By October, the post-commencement funding (PCF) of R2.3bn provided by the IDC had been depleted, with the company having R300m in cash at its disposal to cover R750m in payments due and its liquidity having deteriorated to the “highest it had been since entering business rescue”.
The situation was worsened by creditors demanding R11.7bn in payments.
The group’s dire financial state caused several meetings between the presumptive buyers of its South African business, the Robert Gumede-backed Vision, the IDC and top officials from the department of trade, industry & competition.
Read: CORPORATE PULSE | Gumede’s Tongaat gambit reshapes creditor power
Tongaat, besides looking for an urgent financial injection, also requested the department to speed up the implementation of measures to protect the local industry from cheap imports that had eaten into its sales volumes.
This point was driven home by BRP Trevor Murgatroyd in a letter dated November 4, in which he requested urgent fast-tracking of amendments to the sugar industry agreement.
In the letter, addressed to department minister Parks Tau and the South African Sugar Association, Murgatroyd asked authorities to level the competitive space in the milling and refining prices, including reining in increasing imports from Eswatini.
“These interventions … are essential to ensure the future viability of Tongaat Hulett and to conclude the ongoing business rescue. By way of context, Tongaat Hulett directly employs several thousand people in KwaZulu-Natal and sources sugarcane from more than 15,000 small-scale and community growers,” the letter reads.
“The livelihoods of these stakeholders and indeed a significant portion of the about 65,000 direct jobs and 1-million-plus livelihoods sustained by South Africa’s sugar industry hang in the balance. The urgency of reform cannot be overstated.”
Murgatroyd, in his application, said despite the urgent R600m funding request made to the PIC in late September, and after many meetings between the parties, no funding came forward, making the company’s position untenable.
It appears from the court document that the IDC was open to providing further funding but wanted Vision to meet it halfway.
The 134-year-old Tongaat entered business rescue in October 2022 following severe historic accounting irregularities, financial misstatements and governance failures under former senior management, who are facing criminal charges.
The desperation of Murgatroyd caused him to resort to sending a WhatsApp text to IDC CEO Mmakgoshi Lekhethe in January, seeking an urgent meeting.
Lekhethe responded to this request, made during Davos meetings, that she was out of the country, suggesting he speak to David Jarvis, the IDC’s acting COO.
The meeting did not yield positive results. It was then a race against time to avoid placing Tongaat into business rescue.
“Tongaat has no access to urgently required further funding, nor does it appear it will be provided with the much-needed interim further funding to sustain its operations and meet payment obligations from the end of March 2026,” Murgatroyd’s application reads.
“This is particularly so as a consequence of the recent correspondence exchanged between Vision and the IDC and the imposition of conditions which neither of the parties is prepared to meet.”
The failure of the business rescue, which came after the investor at its centre failed to deliver a multibillion-rand financing package, will put more than 200,000 jobs at risk, hit 27,000 small growers and 1,100 large farms, and put the KwaZulu-Natal rural economy on the brink.
Cane growers urged urgent government action to keep Tongaat Hulett’s mills running.
SA Canegrowers CEO Thomas Funke said that the government must “do everything possible” to secure the future of the more-than-a-century-old stalwart.
“The entire South African sugar value chain, starting with growers and flowing through to workers, transporters and downstream industries, will be severely destabilised,” said Funke.
Tongaat tumbled into the arms of business rescue practitioners in 2022, buckling under the weight of a working capital gap after dubious accounting practices blew a hole in the balance sheet.
The entire South African sugar value chain, starting with growers and flowing through to workers, transporters and downstream industries, will be severely destabilised.
— Thomas Funke, SA Canegrowers CEO
Gumede, a tech billionaire, emerged as a white knight during the process, which made the rescue of the business viable thanks to the IDC’s R2.3bn post-commencement facility that covered daily expenses such as salaries and supplier payments.
But Gumede’s Vision Group — whose plan to take ownership of Tongaat assets in exchange for about R8bn for assuming portions of the sugar maker’s debt had secured shareholder and creditor approval — failed to refinance the IDC’s post-commencement facility as well as to deposit R517m into escrow for the SA Sugar Association and did not provide R75m for concurrent creditors.
With these commitments unmet, and Vision refusing to extend the closing deadline, the practitioners applied for provisional liquidation.
For the state, the failure of the rescue plan adds to a list of deindustrialisation problems facing the IDC and Tau, the trade, industry & competition minister.
The IDC, the mission of which is to act as a countercyclical investor, stepping in when private capital is scarce or risk-averse, is already weighing up buying ArcelorMittal and now faces a second high-profile workout that tests its risk appetite and sharpens political scrutiny.
Vision Group redirected scrutiny away from the business rescue statement that it failed to deliver funding, saying the failure is the outcome of the business rescue process.
“The filing today follows the failure of the business rescue process to effectively stabilise [Tongaat] operations and maximise a turnaround, leaving liquidation as the necessary legal mechanism to allow secured creditors like Vision to take direct control of the assets and initiate a comprehensive recovery plan of the South African sugar business,” it said in a statement.
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