The Industrial Development Corp (IDC) has entered the battle for the control of troubled sugar maker Tongaat Hulett.
It plans to oppose an interdict sought by JSE-listed RCL Foods and the South Africa Sugar Association (Sasa), who want to halt a shareholders meeting at which the protracted process of selling of the sugar company and taking it out of business rescue would be finalised.
IDC spokesperson Tshepo Ramodibe on Friday confirmed that the development finance institution was opposing the interdict application.
“The IDC is engaging with its counterparties to find an amicable solution. This will be to the benefit of Tongaat Hulett, all stakeholders, employees, sugar growers, and the regional economy.
“Our decision [to oppose the interdict] further underscores our commitment to concluding this long process as soon as possible,” Ramodibe said.
The IDC has provided more than R1bn to Tongaat’s business rescue practitioners (BRPs) so the company can continue operations pending finalisation of the rescue process.
Tongaat was placed in business rescue in October last year after its funders pulled the plug when it emerged that key former executives had allegedly manipulated accounts for years. At least six, including former CEO Peter Staude, ex-CFO Murray Munro and an external auditor, have been charged in connection with the corporate fraud amounting to R3.5bn. The company was choking under a R7bn debt pile and could not persuade funders to back its restructuring process.
About 25,000 people, mostly in KwaZulu-Natal, rely on Tongaat for their livelihoods,
The urgent court application by Sasa and RCL Foods, the owner of Selati Sugar, forced the postponement of the business rescue vote that was to have taken place on Friday.
The two companies opposing the interdict are RGS Group from Mozambique and Vision Investments, which is closely associated with businessman Robert Gumede.
The interdict application was brought after a court ruling that dismissed with costs attempts by the BRPs to avoid settling more than R1bn in sugar industry levies owed to Sasa members.
On Thursday, the Durban high court postponed RCL Foods and Sasa’s application to Wednesday December 13. The meeting to consider and vote on the business rescue plan will be held the day after the court delivers its judgment, if the meeting is not interdicted.
RGS, which wants to buy Tongaat for about R8bn and has partnered with the Ingonyama Trust, said it had already provided for 100% of Sasa’s fees in its business plan for Tongaat.
While it opposes the interdict, it does not have issues with the initial court decision to hear the interdict applications on Wednesday, as this “was in line with the legal advice we had received on the matter”, the company said.
Millers pay a statutory levy to Sasa upon each ton of cane that is milled.
Sasa said in its submission that “it is strange and somewhat disconcerting” that the BRPs convened meetings to consider the business plans as if the judgment ordering the continuation of the levy payments did not impact those plans.
“One would have expected a short pause to consider the judgment [and whether to appeal] rather than rushing the plans through with undue haste.”
The BRPs said they were “studying the judgment in detail, its implications and will consider what steps to take thereafter”.
Thomas Funke, CEO of South African Canegrowers, which is supporting Sasa and RCL’s interdict application, said Durban high court judge Rashid Vahed had made it clear that the levies and other obligations due are part of the cost of doing business in the industry as these form part of the regulatory framework, and therefore payment of the dues was not optional.
He said the organisation was concerned at the pace of progress but, at the same time, “we are cognisant of the fact that this process cannot be rushed [and] must be concluded properly for the industry to move forward on a sustainable path that protects the 1-million livelihoods the industry supports.
“South African Canegrowers and its members are willing, where permissible in law, to co-operate with the BRPs to put in place a suitable arrangement that supports the success of the business rescue process.”
In simple terms, this means that Tongaat Hulett and Gledhow have used funds that were due to the industry to fund their operations. The impact in 2023 has been severe
— Thomas Funke
Funke said the ongoing rescue processes at both Tongaat and another sugar miller, Gledhow Sugar, have meant that the debt owed by these millers to Sasa has been funded by all members of the industry, from the smallest cane grower in rural KwaZulu-Natal to the nondefaulting millers.
“In simple terms, this means that Tongaat Hulett and Gledhow have used funds that were due to the industry to fund their operations. The impact in 2023 has been severe in that the cane price due to growers for the 2022/2023 harvest crashed by 8% at the end of March 2023. This plunged growers into the red and the current year has been a scramble for survival.
“Luckily a weaker rand/dollar exchange rate, higher world and domestic sugar prices, and a good harvest together with better milling performance have contributed to a slight recovery in the economics of the sugar industry.”
Funke said the longer the rescue process dragged on, the longer it would take for the milling companies concerned to get back to normal business, which had a direct impact on growers.
He said the millers had met their obligations in paying growers for the cane. Moreover, the IDC’s funding during Tongaat’s rescue process had enabled the company to honour its sugar industry obligations, to the great relief of growers.
“What remains is for the business rescue plan to ensure that the financial commitments previously defaulted on will be repaid in line with the judgment by … Vahed earlier this week,” he said.
Tongaat has attracted interest from a number of companies, most of them in the Southern African Development Community region.
To gain access to Tongaat, Vision Investments signed an agreement with the banks involved to buy more than R7bn of debt owed to them by Tongaat.
It was expected that this was a done deal and that Vision would be Tongaat’s new owner. However, last week, the BRPs surprised the market when they published two plans from Vision and RGS. It is these plants that shareholders are due to vote on.
The Ingonyama Trust, which belongs to the 20-million inhabitants of land it owns in KwaZulu-Natal, said its deal with RGS would be done through its wholly owned investment entity, Ingonyama Holdings.
“We saw the opportunity to participate in Tongaat Hulett as it is meeting our mandate. With RGS Holdings, an established company with technical know-how and the right mindset in the development of small cane growers and keeping jobs, rural jobs in our case, it was a good fit for Ingonyama,” it said.
In terms of how the partnership is structured, the holding company will participate in a special-purpose vehicle and hold a significant stake.
“We hope to influence a narrative that seeks to keep and create more jobs in the sugar cane industry, revive old plants, capacitate growers — especially [those on] our land — get more participation, and raise capital to make community growers [turn] commercial. RGS Holdings seems to tick all our boxes,” Ingonyama Trust said.
