Tongaat Hulett Limited; Tongaat Hulett Development Enter Business Rescue In South Africa
Tongaat Hulett Limited; Tongaat Hulett Development Enter Business Rescue In South Africa. Tongaat Hulett today advised shareholders that the Board has commenced voluntary business rescue proceedings for two operations in South Africa, Tongaat Hulett Limited and Tongaat Hulett Development Proprietary Limited. These operations are planned to move ahead under the business rescue process.
The Board believes that business rescue is the most responsible step in the circumstances. Business rescue is a legal process governed by the Companies Act. The Board believes business rescue should potentially result in a better return to stakeholders than a forced liquidation.
Tongaat has faced significant challenges following years of high and increasing debt levels, alleged financial misstatements and historic mismanagement under previous leadership. The new leadership team and Board have worked tirelessly since 2019 on delivering a comprehensive turnaround strategy. Good progress was made on a variety of fronts, including realising cost savings and improving available funding. Debt, specifically, has been reduced by more than R6.6 billion from a high of R11.7 billion. Despite the good progress, there is a shortfall in the Company’s working capital facilities of approximately R1.5 billion, largely driven through the impact of COVID-19 and the recent unrest in KwaZulu-Natal. This shortfall is necessary to fund the peak working capital requirements to complete the 2023 financial year.
The South African lender group has unfortunately informed the Company that they will not be able to continue supporting the company with additional funding in South Africa. Without this funding, the Board concluded that Tongaat is, or would be, facing “financial distress”, as defined by the Companies Act and that the South African operations are no longer financially sustainable without further liquidity. In this context, the Board has resolved to commence voluntary business rescue proceedings for the Company in line with Companies Act. The Board resolution and a sworn affidavit stating the reasons for going into business rescue has been filed with the Companies and Intellectual Property Commission (CIPC), with the finalisation of their processes in development.
Peter Van den Steen, Trevor Murgatroyd and Gerhard Albertyn of Metis Strategic Advisors will be appointed as the business rescue practitioners and are highly experienced and well-qualified, having completed various high-profile business rescues in South Africa in recent years. Tongaat CEO Gavin Hudson said: “Although this is not the outcome we were hoping for, the start of business rescue is not the end for Tongaat Hulett’s South African operations. Business rescue provides a legal framework that allows the business rescue practitioners to work with key stakeholders to find optimal solutions to our financial difficulties. Tongaat has a proud 130-year legacy and is a significant player in agriculture in South Africa. We have dedicated people working very hard to find the best way forward, and the leadership team is committed to working closely with the business rescue practitioners to ensure a successful outcome to the restructuring of the company that protects those associated with Tongaat.”
While the Company has interest from both existing shareholders and potential new equity investors to support the recapitalisation and retain our existing operating footprint, no-one has been able to provide the total funds required within the time needed to do so. The South African lender group has remained supportive of the Company and has worked constructively with management since 2019. To assist with the c.R1.5 billion liquidity shortfall, the lenders advanced a new borrowing base facility of R600 million on 29 July 2022, which was due for repayment on 25 October 2022. Unfortunately, the lenders informed Tongaat they were unable to further extend the repayment date for the borrowing base facility.Without this funding, the Board determined that Tongaat is, or would be, facing “financial distress” as defined by the Companies Act. The Board therefore agreed that the most responsible step was to place the company into business rescue.
Tongaat Hulett’s Botswana, Mozambique and Zimbabwe sugar operations are not financially distressed and therefore will continue trading in the ordinary course. These three businesses are funded independently from the Company and should be largely unaffected by the adverse circumstances affecting the Company.
