Tongaat Hulett BRPs rebuff ‘sweeter deal’ for sugar producer’s shareholders

Tongaat Hulett’s business rescue practitioners (BRPs) have played down an alternative proposal for the sugar producer, saying they have a legal obligation to forge ahead with the rescue plan adopted by creditors.

In a Sens announcement on Friday, Metis Strategic Advisors, the BRPs, addressed an opinion article by agricultural economist Kobus Laubscher, published in Business Day and on Moneyweb, who argued that a proposed R8-billion capital injection for Tongaat would give shareholders a much better deal than the Vision Consortium rescue plan adopted by creditors on 12 January.

Tongaat’s shareholders will meet on 8 August to vote on Vision’s plan. On 3 July, in a joint circular, Vision and the BRPs warned that if the plan was not adopted, they would have no option but to switch to “plan B” and forge ahead nevertheless.

Should the exchange of debt for equity not be approved by shareholders, the approved business rescue plan for Tongaat provides for an alternative mechanism to transfer ownership of Tongaat’s assets and businesses to Vision.

“In the alternative mechanism, a shareholder vote will not be required. [After] transfer of ownership of the Tongaat assets and businesses to Vision, the Tongaat shares would have no value and are unlikely to trade again, with a delisting being the final outcome.”

Vision Consortium, led by IT mogul Robert Gumede, plans to exchange about R5-billion of Tongaat’s debt for equity, a portion of the debt owed to the bank lender group. The remainder will be restructured on better terms for Tongaat.

Under Vision’s “predatory” plan, said Laubscher, shareholders’ ownership in Tongaat would plummet to a mere 2.7%, while Vision would keep R3.6-billion of its debt within the company, making it highly unlikely that shareholders would recoup any investment. Vision has also allocated just R75-million for repaying unsecured creditors, which translates to less than five cents in the rand.

The South African Sugar Association (Sasa), which in December won its court battle to recoup R1.5-billion from Tongaat, will be paid in full.

Significant discount

Effectively, Vision was acquiring Tongaat at a significant discount, which left unsecured creditors and small businesses hanging out to dry, warned Laubscher. He added that a significant lifeline had been presented to the BRPs, which could save the company from potential liquidation, “offering a more favourable outcome for both shareholders and creditors”.

Vision has yet to stump up the necessary funds to seal the deal. There is also substantial doubt about who is behind Vision and whether the consortium has secured the capital required to fulfil its commitments and ensure Tongaat’s future.

An unnamed interested party has proposed injecting R8-billion to fully repay creditors, which would cover all unsecured debts and a R550-million statutory claim owed to Sasa, but current shareholders would retain 10% of the company, valuing their stake at four times the offer made by Vision.

However, Laubscher said their “Plan B” was not a legal or competent business rescue plan, so if shareholders were to vote against the debt-to-equity conversion, the business rescue practitioners would not be able to legally sell Tongaat Hulett’s assets without a plan being adopted.

“Furthermore,” said Laubscher, “the sale of the assets would require shareholder approval, despite what the business rescue practitioners and Vision Group may claim.”

On Friday, the BRPs kicked back against “recent news articles” about the proposal, saying they had received the alternative proposal, but were “legally precluded from considering, proposing and/or adopting same in any manner or form, as we are obligated in terms of the Companies Act No 71 of 2008 to implement the Approved BR Plan”.

They said they had no reason to believe that the approved BR plan was not capable of “substantial implementation” and were working towards its full implementation.

“The adopted BR Plan is and remains binding on all affected persons and THL [Tongaat Hulett Limited]. THL and the BRPs are pleased with the substantial progress achieved and the productive engagement with the Vision Parties. Furthermore, on 24 July 2024 the Competition Tribunal approved the merger between the Vision Parties and THL, which represents a significant step in the overall implementation of the Approved BR Plan.”

When the Competition Tribunal approved the merger, it stated the public interest conditions imposed on the merger “seek to promote the participation and empowerment of small-scale/HDP farmers in the South African sugar industry and involve, among others, support towards HDPs within THL’s value chain and the establishment of a small-scale grower’s trust”.

Tongaat Hulett was plunged into a crisis after executives were exposed in a corruption scandal that involved the 2018 profits being overstated by 239% and its assets by 34%. In September 2019, Tongaat announced a major turnaround. It replaced its chairperson, Bahle Sibisi, and four other long-time board members, under whose watch the accounting irregularities took place.

The 131-year-old sugar producer was forced to enter business rescue in October 2022 after lenders refused to support its restructuring plan and called in its debt. DM