Tongaat Hulett has eight potential buyers

Tongaat Hulett has attracted the interest of eight potential buyers for either the entire company or its ailing SA business, raising the prospect of saving one of the biggest names and employers in the country.

The business rescue practitioners, Metis Advisory, on Thursday unveiled their plan to save SA’s largest sugar producer and scheduled the vote on it for June 14.

Tongaat tumbled into business rescue, a process aimed at averting bankruptcy, in October, as the company’s debt far exceeded its assets. The troubles began after fraudulent activities discovered in 2018 showed a sizeable shortfall of R12bn in the accounts.

There is significant interest surrounding how Metis Advisory intends to rescue the firm as Tongaat is integral to the rural KwaZulu-Natal economy.

The plan says that Tongaat provides a livelihood to more than 21,000 farmers who sell their cane — at least 15,000 are small scale. At the peak of sugar season, during harvest time, it employs 23,000 people. A total of 2,500 are employed full-time.

However, Tongaat aims to begin a retrenchment process during the business rescue to cut staff, it says.

The plan reveals banks are owed R7.3bn and its total debt is worth almost R10bn. Its assets are worth R5bn, the plan says.

The group generated R7.85bn in revenue in the 2023 financial year and sold R48m worth of land.

Unsecured creditors, excluding lenders, are owed R1.6bn including over R700,000 in sugar levies. Business rescue practitioners have paid R1.2bn to unsecured creditors since the business rescue.

There are hundreds of unsecured creditors, who include trucking companies, agricultural companies, telecommunication companies, and packaging and equipment companies.

Because unsecured creditors will earn almost nothing from a sale of Tongaat, the business rescue practitioners have said they will receive up to a maximum of R90m from the sale of the business. The banks, which usually get paid first, have agreed to pass on this amount to unsecured

creditors. According to the plan, if a sale goes ahead, shareholders will also be left with nothing.

The company’s market capitalisation was R545m before it was suspended from trade in July 2022, but it is impossible to know what shareholders have lost as some may have bought their shares at its peak at about R180 per share.

The share was trading at just over R4 in July.

If the plan is adopted, the company will be delisted from the JSE.

Although the business rescue consultants received interest from many parties, they narrowed down the potential buyers to eight.

All those interested must demonstrate substantial access to funding, present a credible business case and express interest in either acquiring the entire business or the SA sugar operations (which have been running at a loss). The operations in Zimbabwe and Mozambique are more profitable. Potential buyers also need to possess technical expertise, operational ability and offer a fair price.

The Industrial Development Corporation (IDC), which provided R1.2bn in funding to support Tongaat during the business rescue process, will also have some influence over the selection of the buyer.

Final bids need to be submitted by June 15.

The practitioners are continuing to restructure the head office costs to reduce overall expenses.

The business also owes R346m to pensioners who worked at Tongaat before 1996 and who at present get half their medical aid premiums paid each month due to a historical agreement. It hopes to buy them out and remove this liability from the books.

While business rescue allows firms to stop payments to creditors, business rescue practitioners paid off R1bn owed to cane farmers from before the business rescue process started, and an additional R400m during the process to ensure the sugar farming sector remained stable.

Tongaat’s 2,500 staff remained employed and earning the same salaries, and the company has invested R400m in maintenance activities outside of the growing season.

According to the practitioners, “this marks the most comprehensive maintenance performed in many years”.

The first step taken by the business rescue practitioners was to secure funding to keep Tongaat running, initially from existing bankers. They also managed to secure the IDC money within two months of taking control.

This funding enabled the completion of the 2022 sugar season and the off-crop programme maintenance necessary for starting the 2023 season.

The practitioners are now working with the IDC to extend the funding arrangement.