The determination by JSE-listed Tongaat Hulett to terminate an underwriting settlement of as much as R2 billion with Magister Investments, for its planned R5 billion rights subject to cut back the corporate’s huge debt, has been welcomed.
Analyst and shareholder activist David Woollam has welcomed the Tongaat board’s determination.
“We always argued that a rights issue of this magnitude, based on unaudited results and an extremely weak share price, wasn’t a fair or optimal solution,” he stated this weekend.
“The proposed rights subject would have resulted in an 85% to 90% dilution of an organization that had already misplaced 95% of its worth whereas all different stakeholders have been sitting fairly.
“At a secondary level, allowing an unknown entity [Magister] to gain control of the company through a heavily discounted rights offer was prejudicial to shareholders,” he stated.
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Shareholder activist Chris Logan stated the termination of the planned rights subject is “very positive”.
“The banks have been shown to be paper tigers. They are not going to pull the plug on Tongaat; they keep extending and, given the apparent legitimacy of this Mozambique approach, there is value to be unlocked,” he stated.
This is a reference to reviews that US-based Lusitania Investment Capital had made an offer of about $220 million for Tongaat’s sugar operations in Mozambique, however Tongaat was unable to enter into negotiations due to the rights offer course of.
Tongaat introduced the termination of the underwriting settlement with Magister on Friday, highlighting that it was topic to the fulfilment of sure circumstances precedent on or earlier than 30 June and it doesn’t anticipate these circumstances shall be fulfilled on or previous to that date.
The ‘real reason’
However, Logan stated that date may very well be and is commonly prolonged, including the actual cause Tongaat shouldn’t be continuing with the rights offer and underwriting settlement is as a result of this transaction had been successfully struck down by the Takeover Regulation Panel (TRP) and that call shouldn’t be being appealed.
“So they [Tongaat] are not being straight with the market,” he stated.
Logan stated Tongaat has not denied the offer for its Mozambique operation and, from the value talked about, Tongaat could be realising full worth for an operation that doesn’t make a lot revenue.
Restructuring
Tongaat on Friday additionally introduced the institution of a restructuring committee and the appointment of non-executive director Piers Marsden as chief restructuring officer to accentuate concentrate on the turnaround of the corporate as a result of delay in implementing the rights offer.
The firm stated the first duty of Marsden and the restructuring committee shall be to additional concentrate on creating options to cut back and repay debt to sustainable ranges whereas enhancing the liquidity of the corporate.
It stated Marsden’s appointment can even present Tongaat executives with extra capability to concentrate on strategic progress, operational points and the day-to-day calls for of managing the group to ship future worth to all stakeholders.
Tongaat Hulett CEO Gavin Hudson stated they’ve taken some crucial steps to safe the way forward for the corporate in gentle of the Magister growth and the delay within the rights offer requires them to usher in additional assets to additional speed up their restructuring plans.
Hudson stated the lender group stays supportive of Tongaat and the corporate is at the moment participating with them and different events to offer liquidity, which is able to present them with extra time as they work to progress a complete restructuring resolution.
“The chief restructuring officer we have appointed has a strong track record in turning around and restructuring companies for sustainable growth and we have a clear intent to move forward,” he stated.
Open to choices
Logan believes Tongaat is now not categoric a couple of capital increase and is opening the door to different choices.
He stated the potential sale of the Mozambique operation “could be a game-changer” by way of the value talked about and would take away the necessity for a rights subject.
However, Tongaat on Friday repeated that it stays firmly of the view {that a} capital increase is a greater different to strategic asset disposals, notably an accelerated disposal programme which is unlikely to grasp full worth for the property.
Redress
Logan stated there’s nonetheless Tongaat’s declare towards auditor Deloitte that he believes is “well north of R1 billion”.
Tongaat reported in February that six former firm executives – Peter Staude, Murray Munro, Michael Deighton, Rory Wilkinson, Kamlasagrie Singh and Samantha Shukla – and Deloitte audit accomplice on the Tongaat Hulett audit Gavin Kruger had appeared within the Durban industrial crime courtroom in relation to fraud costs and have been all granted bail.
The costs stemmed from alleged fraudulent exercise between March 2015 and September 2018 associated to the alleged backdating of land sale agreements, which had a major influence on the corporate’s monetary outcomes and led to a lack of worth to shareholders.
In separate proceedings, Tongaat Hulett Developments, a subsidiary of the group, instituted a civil case within the Pietermaritzburg High Court in February 2020 towards the previous MD Michael Deighton.
In complete, Tongaat is claiming about R450 million from these previous administrators and executives.
The civil motion is predicated on the findings of the PwC forensic investigation.
Tongaat anticipates the instances shall be scheduled to be heard in early 2023.
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Woollam stated Tongaat clearly must restructure its steadiness sheet and cut back its debt, however maintains there are higher and extra equitable options out there than a rights subject, together with:
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Pursuing damages claims from these allegedly answerable for or complicit within the fraud, such because the auditors;
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Negotiating a haircut or partial rebate from the lenders, together with the conversion of a few of the debt right into a subordinated instrument, equivalent to a choice share or convertible debentures;
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Proceeds from the sale or partial sale of property;
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A reasonable fairness increase; and/or
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Extension of the rest of the debt into medium-term debt with interest-only funds for 3 years.
In regard to his proposal of a haircut or partial rebate from lenders, Woollam highlighted that each one the lenders superior greater than R12 billion in debt to an organization that “any half decent due diligence would have had red flags popping up everywhere”.
Woollam stated Tongaat nonetheless has a whole lot of work to do and fears this board is appearing out of desperation and as a final resort reasonably than being proactive and strategic.
“All these selections and bulletins are too little too late and I don’t see that altering.
“The full-year results will reveal what I told them more than six months ago – that the operational performance had significantly deteriorated and that regardless of the capital structure, the operating earnings were dismal and blaming external factors – Covid-19, riots and floods – was a denial of the real problems and that they would therefore fail to be fixed,” he stated.
Shares in Tongaat Hulett rose by 4% on Friday to shut at R2.60.
