Tongaat Hulett placed in business rescue

In a round table discussion last year, Robin Nicholson (Director of Corporate-911) pointed out that South African companies are facing a tough external operating environment which may pose challenges that will place even the most economically sound company into business rescue.

This year has truly tested that theory businesses in KwaZulu-Natal (KZN) and Johannesburg had to deal with the civil unrest that sparked up following the court appearance of former President Jacob Zuma. The rioting, vandalism and looting that followed the unrest cost companies millions with some closing down completely. A few months later, KZN had to deal with devastating floods that cost the province billions of Rands. Again, some companies simply couldn’t survive the financial setback they faced.

South Africa’s biggest sugar producer, Tongaat Hulett, struggled to address both of these challenges (and leadership issues) and has now been placed in business rescue.

R6.3 billion in SA debt

The News24 article points out that the group needs R1.5 billion as it services roughly R6.3 billion in SA debt and continues its sugar milling season, but it said on Thursday that lenders, after advancing R600 million, now want this repaid.

“The South African lender group has informed the company that in all of the circumstances of the restructuring plan, they are unable to support the restructuring plan, or provide the additional funding required,” Tongaat said.

The article adds that Tongaat’s board approved a plan in October that includes disposing of its non-SA operations, securing investment for its SA business, introducing a five-year debt instrument that would be repaid through land disposals, as well as continuing to recoup money related to its accounting scandal.

Metis gets the nod

The article points out that The board has appointed Trevor Murgatroyd, Peter van den Steen and Gerhard Albertyn of Metis Strategic Advisors as the business rescue practitioners.

The firm’s Botswana, Mozambique and Zimbabwe sugar operations are not financially distressed, the group said. These three businesses are funded independently from the company and “should be largely unaffected by the adverse circumstances affecting the company,” it said.

The article adds that the firm is battling to recover from an accounting scandal, SA’s second biggest after Steinhoff, while also trying to whittle down what it previously said was a R7.6 billion net debt pile. It has been hit with a series of adverse events, including a downturn in the property market in KwaZulu-Natal that hobbled plans to sell property, civil unrest in that province which led to destruction of cane fields, and more recently flooding in the province.

Operational headwinds were also encountered “in the form of the sugar loss at the refinery and poor milling performance, which revealed inadequate historic plant maintenance,” the company said on Thursday.

Leadership problems

The News24 article points out that CEO Gavin Hudson had been appointed in 2019 to drive a recovery for the group. The over 150-year-old sugar producer had asked the JSE to temporarily suspend trade in its shares in June 2019 after an investigation flagged accounting practices that meant previous financial results could not be relied on.

A PwC investigation identified 10 executives, including former CEO Peter Staude, who were allegedly involved in profit inflation. It also found that there was a culture of deference within Tongaat that led to employees not questioning accounting practices.

The aricle adds that the PwC investigation identified practices that inflated profits, as well as practices that inflated the value of assets, including its sugar cane, and the company has been forced to restate previous financial results, including for the six months to end-September 2018. That restatement resulted in total assets decreasing by about R12 billion, or just over a third. Charges have since been laid against former executives in a R3.5 billion fraud case, which is ongoing.

Tongaat has seen its shares lose more than 96% of their value over the past four years, and had again asked for a temporary suspension from the JSE in July, due to delays in releasing its results as it finalised its plan.