The board of financially distressed JSE-listed sugar producer and property firm Tongaat Hulett has been criticised for asserting a board-approved restructure plan for the corporate that its lenders had neither acquired nor accredited.
Tongaat’s lenders final week rejected the proposed restructuring plan and indicated they might not advance additional funds to the corporate, leading to Tongaat’s board asserting on Thursday it had determined to embark on voluntary enterprise rescue proceedings.
Tongaat’s South African operations are drowning in a pool of debt estimated at greater than R5 billion, with a brand new R600 million short-term borrowing facility obtained on 29 July to help an about R1.5 billion working capital shortfall now due for compensation.
An trade insider stated Tongaat’s board “painted themselves into a corner” and is flabbergasted the corporate revealed a debt restructuring plan that was accredited by the board however with out the approval of the lenders.
“It’s like announcing your wedding before you ask your prospective wife,” he stated. “It’s stupid.”
‘Checkmate’
The insider stated the second the lenders declined Tongaat’s request, it was “checkmate”.
Tongaat legally, when it comes to the Companies Act, then needed to conclude that it was in monetary misery as a result of it couldn’t meet its liabilities that had been due and payable and the banks weren’t going to advance it any more cash, he stated.
Shareholder activist Chris Logan stated it’s “hugely sad” Tongaat has had to enter enterprise rescue, which has large socio-economic penalties.
He stated the basis downside is that for most likely the previous 12 years Tongaat’s SA sugar operations haven’t been economically viable however this was hidden from view due to all of the fraud within the firm that resulted within the firm reporting earnings when there have been “raging losses”.
Logan stated Tongaat reported working losses totalling R1.61 billion over its final 4 monetary years from 2018 till 2021.
‘Too little, too late’
He doubts its SA sugar operations will ever be economically viable due to the low yield from sugar manufacturing within the space and the shortage of a dependable provide of water.
He stated the newest debt restructuring plan dated 14 October seemed beneath the circumstances like a superb plan however as soon as the corporate has been positioned in enterprise rescue “it’s too little, too late”.
Logan believes one thing optimistic might probably come out of the enterprise rescue proceedings however robust choices will have to be taken shortly.
However, he doesn’t know the way they may take care of the potential socio-economic disaster that will probably be brought on by the monetary woes of the SA sugar operations.
“The South African sugar operations are a multitude. You are wrestling with an uneconomic scenario.
“The fraud was helluva destructive. It stopped people taking the necessary remedial action because they did not know the truth,” he stated.
“They were fed fairy tales.”
Read:
The fraud at Tongaat is said to the National Prosecuting Authority (NPA) in February charging a number of former executives and a Deloitte audit accomplice with fraud totalling R3.5 billion.
This adopted an investigation spanning nearly two years into the accounting irregularities on the firm that compelled the group to restate its monetary outcomes for two prior years.
‘Looming catastrophe’
SA Canegrowers warned final week about a disaster looming within the sugar sector and for its 1000’s of staff in KwaZulu-Natal due to Tongaat going into enterprise rescue.
SA Canegrowers chair Andrew Russell stated Tongaat’s enterprise rescue proceedings imply the corporate has misplaced entry to its financial institution accounts, which implies the greater than R401 million that was as a result of be paid to growers on the finish of October will probably not be transferred on time.
“This could have dire monetary penalties for growers in addition to the farm staff they help.
“This situation could plunge thousands of growers and workers into destitution and raises the risk of unrest in KwaZulu-Natal’s rural cane growing communities.”
Russell stated funds to supplying growers are made within the month following supply, including that the funds due on the finish of October are for sugar cane delivered in September.
Read: Tongaat BRP: SA Canegrowers anxious about R400m cost delay
“For a number of small-scale growers, September marked their first deliveries of the season, and any default on these payments will have devastating impacts on their livelihoods, as well as the communities they support,” he stated.
Russell added that questions additionally stay about how funds will probably be made for deliveries in October, November and December, which implies the influence on growers is prone to worsen if the mills don’t stay operational.
Blinkers, misrepresentation
The trade insider claimed Tongaat’s board, which has been in place for three years, has “done absolutely nothing” and has “presented an unrealistically rosy picture”.
“If you go back to even December, they were presenting a pretty promising outlook,” he stated.
The insider stated it’s disgraceful that shareholders and stakeholders don’t even know the way a lot Tongaat is within the “red” and is vital of firm claims that the JSE is not going to enable it to problem unaudited outcomes.
“That is complete bull*. In the public interest, they could have issued a statement of management accounts,” he stated.
Read:
The insider suspects Tongaat’s lenders rejected the plan and the development of additional funds as a result of they ran out of endurance with the Tongaat board.
He believes the essence of the issue is that Tongaat was superior an excessive amount of debt throughout a interval when it was clearly overstating its prospects and the banks “bought this hook, line and sinker”.
‘Banks culpable’
“The banks lent an excessive amount of cash to Tongaat and will write off a few of this cash, notably as they’re charging nearly micro-lending charges and have made billions out of Tongaat.
“They lent R13 billion to an organization that they now wish to lend nothing to however stakeholders can’t simply demand the banks take a haircut.
“The banks must write off about R2 billion and R2 billion must come from investors, which should stabilise the company. There has to be a quid pro quo,” he stated.
The insider stated the trade is just too essential to fail and since the socio-economic implications are too nice.
“It can’t fail, therefore somebody will own it and now it’s a case of how do you package it,” he stated.
The JSE suspended buying and selling within the shares of Tongaat Hulett on 19 July due to the failure of the corporate to publish its monetary outcomes inside the stipulated interval.
Read:
JSE suspends Tongaat Hulett for second time in three years
Debt-laden Tongaat Hulett could promote its landmark HQ
