BULAWAYO – Johannesburg Stock Exchange-listed Tongaat Hulett Limited will on Thursday get a chance to move a step closer to a substantially better future when shareholders meet to vote on a debt to equity swap in a bid to save the company.
The shareholder vote is another important step towards the sugar manufacturer coming out of business rescue. The company’s South African operations went into business rescue in October 2022 after fraudulent activities were uncovered, but its business units in Botswana, Zimbabwe and Mozambique were unaffected.
Immediately prior to being placed in business rescue, the company had breached its loan covenants and was unable to pay back or settle R7 billion of debt it owed to a consortium of South African banks at the time. The banks had all of Tongaat’s assets as security, which assets had a lesser value than the outstanding debt, implying a negative equity value for Tongaat.
Instead of liquidating the company, the directors opted to take it into business rescue in order to try save it. Following a lengthy business rescue process, the Vision Investments plan was approved at a meeting of all creditors on January 11, 2024. As part of that plan, Vision had acquired the secured debt owing to the banks at that time. In addition, all unsecured creditors would be payed through a one-off payment.
To improve the balance sheet of Tongaat, Vision have proposed a debt to equity swap, whereby R5 billion of the R8.6 billion debt currently owing would be swapped for fresh equity being issued by Tongaat to Vision.
The residual R3.6 billion of debt still owing to Vision would be held as subordinated long-term debt in Tongaat.
Since the company’s placement into business rescue, a few key milestones have been achieved. The first milestone was when the banks and Vision entered into a full and final debt purchase agreement ahead of the creditors meeting in January this year. The banks have been very supportive and facilitated Vision to save Tongaat from liquidation by accepting its offer to acquire all the banks’ debt in Tongaat.
The second milestone was when the Vision plan was approved at the meeting of all Tongaat creditors in January this year.
Vision is an entrepreneurial consortium made up of Robert Gumede of Guma Agri, Rute Moyo of Remoggo, Amre Youness of Terris Sugar and Nauman Khan of Almoiz. Since 2019, the various members of Vision had, in their own right, been involved in various negotiations to acquire all or some of the Tongaat businesses before the 2022 placement of the company into business rescue.
However, after Tongaat was placed in business rescue, the Vision members decided to join forces and collectively bid for the company.
At the creditors meeting on January 11, the Vision plan was approved without a competing business rescue plan after Mozambican company RGS, led by its controversial chairman Acquil Rajahussen withdrew a day before the creditors meeting following revelations that RGS had submitted a fraudulent R2 billion ABSA Bank (Mozambique) proof of funds letter.
Similar to the impact of the failed Kagera bid, the failed RGS bid has been extremely costly to Vision and to the company.
Vision decided to lay fraud charges with the South African Police Service against RGS, its directors and in particular Rajahussen. ABSA Mozambique have also reportedly laid fraud charges against RGS in Maputo.
The third milestone was achieved when the South African Competition Tribunal recently approved the Vision acquisition of Tongaat. Vision has since submitted applications to Botswana, Zimbabwe and Mozambique competition commissions for approvals and hopes that those countries will follow South Africa’s example.
The fourth milestone for Tongaat was the publishing of the JSE Circular regarding the debt for equity swap. At the shareholders meeting convened through the publication of the circular, the long-suffering current shareholders of Tongaat have two options as per the approved Creditors Business Rescue Plan, namely, vote in favour or against the debt for equity swap.
Should shareholders vote in favour, the current shareholders will retain 2.7 percent of the JSE listed shares of a company that is recapitalised and has a good chance of future growth. Should the debt for equity resolutions not be approved, Vision will have the option of exercising its right in terms of the agreed Vision Plan to conduct a debt for asset swap of all Tongaat assets that are included in the debt package, which include all the assets in the operating businesses in South Africa as well as all shares in the operating businesses across the other jurisdictions.
As part of a debt for asset swap, Vision will move all the operating businesses on a going-concern basis, assets and employees into new entities in which it will have 100 percent equity interest with no legacy obligations. Current shareholders will receive ZERO value for their shares as the Tongaat entity will be wound down or liquidated through the business rescue process.
Whether shareholders support the proposed resolutions or not, Vision says its plan will continue to be implemented and Tongaat operations will continue in their current guise or under new entities.
“Vision has no plans to dispose of any Tongaat assets. In terms of the approved Vision Plan, the unsecured creditors will be paid R75 million by Vision. That amount is securely in a bank account and will be escrowed shortly for distribution to the unsecured creditors. This is a significant gesture from Vision to support the unsecured creditors, some of whom will continue to be long term suppliers of products and services to Tongaat,” Vision said in a statement.
As part of the future vision for Tongaat, the Vision shareholders, who are all successful entrepreneurs, have met with, amongst others, the South African government, the Premier of KZN, the Mozambican Prime Minister, various other Mozambican ministers, the Zimbabwean government as well as IGEPE, the Mozambican Sovereign Fund that already owns 15 percent of Tongaat’s Mozambique operations.
In Mozambique and Zimbabwe, Tongaat is the largest private sector employer and the second largest employer after government.
Vision has ambitious plans for Tongaat, including diversification and expansion into energy – ethanol and electricity from bagasse – to help alleviate the energy supply and costs in the region.
With Africa still being a net importer of sugar, Vision is also looking at the potential of new capacity and capability in suitable jurisdictions that have substantial markets and supply deficits.
