Africa-Press – Botswana. The sugar giant’s Board said it believed business rescue was the most responsible step in the circumstances, potentially offering a better return to stakeholders than a forced liquidation.
Anxious times await shareholders, sugar cane growers and farm workers as appointed business rescue practitioners get to work in the coming week to bring clarity to the way forward after the Tongaat Hulett Board announced on Thursday the sugar giant had begun voluntary business rescue proceedings.
Involved are two South African operations – Tongaat Hulett Limited and Tongaat Hulett Development Proprietary Limited. Botswana, Mozambique and Zimbabwe operations are not affected.
Although the company’s financial instability has been known in the industry for some time, the business rescue decision conveyed to company shareholders on Thursday nevertheless came as a shock.
The Tongaat Hulett Board said it believed business rescue was the most responsible step in the circumstances, potentially offering a better return to stakeholders than a forced liquidation.
Experienced business rescue practitioners Peter van den Steen, Trevor Murgatroyd and Gerhard Albertyn of Metis Strategic Advisors will be appointed to drive the process forward. They have completed various high-profile business rescues in South Africa in recent years.
According to reports, the South African Cane Growers Association has expressed deep concern about the impact the latest development will have on growers and their workers.
Association chairman Andrew Russel was quoted as saying that millions due to being paid to growers at the end of this month are likely not to be transferred on time, with dire consequences for the industry communities.
Payments for October to December deliveries now also hang in the balance.
Thursday’s drastic step comes in the wake of Tongaat Hulett’s significant financial challenges following years of high and increasing debt levels, compounded by alleged financial misstatements and historic mismanagement under previous leadership.
In its media statement on Thursday, the company said its new leadership team and Board have worked tirelessly since 2019 on delivering a comprehensive turnaround strategy.
“Good progress was made on a variety of fronts, including realising cost savings and improving available funding. Debt, specifically, has been reduced by more than R6.6-billion from a high of R11.7 billion.
“Despite the good progress, there is a shortfall in the company’s working capital facilities of approximately R1.5-billion, largely driven by the impact of Covid-19 and the recent unrest in KwaZulu-Natal. This shortfall is necessary to fund the peak working capital requirements to complete the 2023 financial year.
“The South African lender group has unfortunately informed the company that they will not be able to continue supporting the company with additional funding.
“Without this funding, the Board concluded that Tongaat is, or would be, facing ‘financial distress’, as defined by the Companies Act and that the South African operations are no longer financially sustainable without further liquidity.
Tongaat CEO Gavin Hudson said: “Although this is not the outcome we were hoping for, business rescue is not the end for Tongaat Hulett’s South African operations.
“Business rescue provides a legal framework that allows the business rescue practitioners to work with key stakeholders to find optimal solutions to our financial difficulties. Tongaat has a proud 130-year legacy and is a significant player in agriculture in South Africa.
“We have dedicated people working very hard to find the best way forward, and the leadership team is committed to working closely with the business rescue practitioners to ensure a successful outcome to the restructuring of the company that protects those associated with Tongaat.”
The South African lender group has remained supportive of the company and has worked constructively with management since 2019. To assist with the R1.5-billion liquidity shortfall, the lenders advanced a new borrowing base facility of R600-million on 29 July, which was due for repayment on 25 October.
Tongaat Hulett’s shares will remain suspended on the JSE.
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