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Tongaat Hulett forced into business rescue by excess debt

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Financially troubled sugar producer Tongaat Hulett on Thursday announced that it will be entering a voluntary business rescue process (BRP), after its board found the company to be under “financial distress”.

In a Sens statement the JSE-listed company – which is currently suspended from trading due to a delay in publishing its latest financials – said that its debt levels are well in excess of what it can service after business recapitalisation plans took longer than expected.

The group’s property division – Tongaat Hulett Developments (THD) – will also undergo the BRP as it is dependent on the company for funding.

However, according to the group, its Botswana, Mozambique and Zimbabwe sugar operations will be exempt from the rescue process as they remain financially sound and are not reliant on Tongaat for funding.

The Tongaat board has appointed Trevor Murgatroyd, Peter van den Steen and Gerhard Albertyn of Metis Strategic Advisors as the business rescue practitioners of the company and THD.

 

Tongaat share price over 3 years

 

“The business rescue practitioners will investigate the affairs of the group, consider the various options available and develop a business rescue plan for consideration by the company’s affected persons,” Tongaat said.

“The company lodged the requisite documents with the Companies and Intellectual Property Commission (CIPC) on 27 October 2022 and awaits confirmation of filing from the CIPC.”

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Debt problems

The KwaZulu-Natal-headquartered company has faced several challenges over the last few years, including allegations of mismanagement, financial misstatements and increasing debt levels.

Before the introduction of new leadership in 2019, the group was battling debt as high as R11.7 billion. However, since implementing its turnaround strategy under new management, Tongaat says it was able to reduce its debt levels by more than R6.6 billion, after selling off some of its non-core, and in some instances, core assets.

Despite these efforts, the group says it is still unable to service this leftover debt, a majority of which (87%) is carried by the cashflows of the South African sugar operations, the property business and dividends and operational support fees received from its non-South African sugar operations.

The Covid-19-pandemic, together with the July riots and devastating floods in KZN did not make it any easier for the company to stage a successful turnaround.

The group further added that its recovery was further hampered by the operational headwinds it experienced in the form of sugar loss at its refinery and poor milling performance due to historic poor plant maintenance.

Read: Construction on KZN’s new mini city Westown to finally begin

Restructuring plan

In September it seemed that the debt-laden company was making good progress with addressing its liquidity constraints through its debt restructuring plan when it revealed to the market that it had secured a short-term R600 million borrowing base facility from a South African lender.

The facility was supposed to assist towards its R1.5 billion working capital shortfall.

However, with the facility due for repayment and Tongaat void of alternative funding solutions to support its restructuring plans, the move into BRP was seen as necessary by the board.

It is not yet clear what the expected timeframes for the rescue plan will be, however the group did note that its shares will remain suspended on the JSE in the meantime.

Read:

Tongaat Hulett makes progress with its debt restructuring

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