The board of financially troubled JSE-listed sugar producer and property company Tongaat Hulett has come under fire for announcing a board-approved restructuring plan for the company that its lenders had neither received nor approved.
Tongaat’s lenders last week rejected the proposed restructuring plan and said they would no longer advance funds to the company, leading Tongaat’s board to announcement Thursday it had decided to initiate a voluntary company rescue procedure.
Tongaat’s South African operations are awash in debt estimated at more than R5 billion, with a new short-term loan facility of R600 million secured on July 29 to bridge a working capital shortfall of around 1.5 billion rand which must now be repaid.
An industry insider says Tongaat’s board ‘has painted itself into a corner’ and is flabbergasted that the company has released a debt restructuring plan which has been approved by the board but without the approval of the lenders.
“It’s like announcing your marriage before you ask your future wife,” he said. “That’s stupid.”
The insider said the moment the lenders turned down Tongaat’s request was “checkmate”.
Tongaat legally under the Companies Act then had to conclude that she was in financial difficulty as she could not meet her outstanding debts and the banks were no longer going to advance her money, it said. -he declares.
Activist shareholder Chris Logan said it was “extremely sad” that Tongaat had to embark on a company bailout, which has massive socio-economic consequences.
He said the fundamental problem is that probably for the past 12 years Tongaat’s sugar operations in South Africa have not been economically viable but this has been hidden because of all the fraud in the business. which led the company to report profits when there were “raging losses”. .
Logan said Tongaat recorded operating losses totaling R1.61 billion in its last four financial years, from 2018 to 2021.
‘Too little, too late’
He doubts his sugar operations in South Africa will ever be economically viable due to the low yield of sugar production in the region and the lack of a reliable water supply.
He said the latest debt restructuring to plan dated October 14 appeared in the circumstances to be a good plan, but once the company was placed in business rescue “it’s too little, too late”.
Logan thinks something positive could eventually come out of the company’s rescue proceedings, but tough decisions will have to be made quickly.
However, it is unclear how they will handle the potential socio-economic disaster that will be caused by the financial difficulties of the SA sugar operations.
“The South African sugar operations are a mess. You are struggling with an uneconomic situation.
“The fraud was damn destructive. It stopped people from taking the necessary corrective action because they didn’t know the truth,” he said.
“They were fed fairy tales.”
The fraud in Tongaat is linked to the fact that the National Prosecuting Authority (NPA) in February accused several former executives and an audit partner of Deloitte of fraud totaling R3.5 billion.
This follows a nearly two-year investigation into the company’s accounting irregularities which forced the group to restate its financial results for two previous years.
SA Canegrowers warned last week of impending disaster in the sugar sector and for its thousands of workers in KwaZulu-Natal due to the rescue of Tongaat.
SA Canegrowers chairman Andrew Russell said Tongaat’s business bailout process means the company has lost access to its bank accounts, which means the more than R401 million that needed to be paid to producers at the end of October will probably not be transferred in time.
“This will have disastrous financial consequences for producers as well as the agricultural workers they support.
“This situation could plunge thousands of growers and workers into misery and increase the risk of unrest in rural KwaZulu-Natal sugar cane growing communities.
Russell said payments to supplier growers are made within a month of delivery, adding that payments due at the end of October are for cane delivered in September.
“For a number of small-scale growers, September marked their first deliveries of the season, and any failure to pay will have devastating effects on their livelihoods, as well as the communities they support,” he said. declared.
Russell added that questions also remain over how payments will be made for deliveries in October, November and December, meaning the impact on growers is likely to worsen if the mills do not remain operational.
Turn signals, misrepresentation
The industry insider claimed Tongaat’s board, which has been in place for three years, has “done absolutely nothing” and has “presented an unrealistic picture in pink”.
“If you go back even in December, they had a pretty good outlook,” he said.
The insider said it’s shameful that shareholders and stakeholders don’t even know how far Tongaat is in the ‘red’ and criticizes the company’s claims that the JSE won’t allow it to post reports. unaudited results.
“It’s complete bull*. In the public interest, they could have released a statement of management accounts,” he said.
The insider suspects that Tongaat’s lenders rejected the plan and the advancement of additional funds because they lacked patience with Tongaat’s board.
He believes the essence of the problem is that Tongaat got into too much debt during a period when it was clearly overstating its outlook and the banks “bought this hook, line and sinker”.
“Banks have lent too much money to Tongaat and should write off some of that money, especially as they charge near-micro lending rates and have made billions with Tongaat.
“They lent R13 billion to a company they don’t want to lend to anymore, but the stakeholders can’t just demand that the banks take a haircut.
“Banks need to write off about R2 billion and R2 billion needs to come from investors, which should stabilize the business. There must be a quid pro quo,” he said.
The insider said the industry is too big to fail and because the socio-economic implications are too big.
“It can’t fail, so someone will own it and now it’s about how to package it,” he said.
The JSE suspended trading in Tongaat Hulett shares on July 19 due to the company’s failure to publish its financial results by the deadline.