Mozambican group RGS will again attempt to get its hands on Tongaat Hulett after the sugarmaker’s shareholders rejected a debt-to-equity conversion proposal from winning bidder Vision Investments. RGS described the rejection as “monumental.”
Tongaat has been in business rescue since October 2022 and in January its lenders, led by major banks, approved a plan submitted by Vision Investments to buy their debt in the distressed company.
On Thursday, Tongaat’s shareholders voted against proposals to swap its R8bn debt, held by Vision, into equity. This would have resulted in Vision, led by businessmen Rute Moyo and Robert Gumede, owning 97.3% of the sugar giant while shareholders would be diluted down to 2.7%.
Vision is a consortium made up of Terris Sugar, part of the Terris Fund; Gumede’s Guma; Mauritius-registered Remoggo; and Almoiz, one of Pakistan’s largest agribusinesses.
Rejection of the debt-to-equity swap means shareholders will walk away with nothing — not even 2.7% — as the company’s assets will be transferred into a new Vision-owned entity. The company, listed on the JSE for over 100 years, will be delisted and is likely to be rebranded.
Vision bought the debt from the lender group of major banks, and the sugar company’s assets were put down as surety.
In an interview with Business Times on Thursday, RGS head of commercial Keeghan Sipahli said there is a “growing consensus that the Vision plan is unimplementable.”
He said the vote was “monumental” for corporate governance and transparency.
At the meeting on Thursday, shareholders raised concerns about the lack of information from Tongaat’s business rescue practitioners (BRPs), Metis Strategic Advisors, and questioned whether Vision actually had the money for the transaction.
Sipahli said the company would approach the BRPs again, and if they rebuffed its attempts once more, RGS would stand down.
Three weeks ago, RGS sent a letter to the BRPs with a new offer of R8bn for Tongaat, saying it had applied for funding from the African Export & Import Bank (Afreximbank). The losing bidder argued once more that the business rescue plan as adopted, was unlikely to be implementable under current terms.
However, the BRPs said they were duty-bound to implement each of the plans as approved and were in no position to engage with RGS.
RGS has been on an aggressive campaign in recent weeks to discredit Vision’s plan. It was also said to be lobbying shareholders to support its proposal. Sipahli has denied doing so. He said RGS will not be approaching the courts nor the banks; but will speak directly to the BRPs.
A source close to Vision said if RGS wants control of Tongaat, it will have to buy the debt from Vision.
Asked if RGS will make an offer to Vision, Sipahli said: “Our plan is to engage with the BRPs, that’s our legal mechanism. As it currently stands Vision doesn’t own the debt.”
Our plan is to engage with the BRPs, that’s our legal mechanism. As it currently stands Vision doesn’t own the debt
— Keeghan Sipahli, RGS
During the meeting, the BRPs said they received a letter indicating that Vision had paid part of the money to the lenders.
Metis Strategic Advisors said it would continue to implement the adopted plan for the sale of the company as a going concern to the Vision parties.
“This means that the Tongaat Hulett business, along with all its operations and employees, will be transferred and housed inside Vision Investments in the future. It is a more laborious process, but effectively results in the same outcome from an employee, grower, creditor and supplier point of view,” the BRPs said.
The company will be 100% owned by Vision Investments.
This will therefore just be a different process, which has already been incorporated in the business plan that the lenders adopted in January, as an alternative to the exchange of debt for equity, the BRPs said.
“This does not result in the liquidation of the assets of the company. The currently listed company will be delisted and will become an empty shell which, in time, will cease to operate and have no assets, whereafter it will be liquidated,” they added.
Vision Investments spokesperson Rob Bessinger said although Vision was disappointed that current shareholders would ultimately no longer participate in the business, they had no regrets about the process followed since Tongaat shareholders had exercised their democratic right.
“We understand their disappointment and disillusionment as they have seen their investment destroyed by the fraudulent activities of previous THL [Tongaat Hulett Ltd] management. However, Vision is not to blame as our role is to invest our own money and skills into saving THL and jobs and we are not linked to THL’s dramatic erosion of shareholder value.”
He said the second option allows “us to move forward with a new unlisted entity, giving Vision a fresh start without any legacy obligations”. The new entity would honour a ruling by the Competition Tribunal that the company’s 32,000 employees and supporting small-scale growers be kept on.
Vision will also pay unsecured creditors R75m, which it said was “a significant goodwill gesture to support the unsecured creditors, some of whom will continue to be long-term suppliers of products and services to the new THL”.
Bessinger said the money that Tongaat owes the sugar industry was not affected by Thursday’s vote because if Tongaat failed to settle it, Vision would do so on its behalf.
Tongaat Hulett needs to repay almost R526m to the sugar industry. The matter is still before the courts after the BRPs were granted leave to appeal a Durban high court ruling that the company must pay the levies.
South African Canegrowers urged the Vision consortium to pay the outstanding levies urgently.
“It is with disappointment [we] recently learnt that Tongaat is still holding back on paying these outstanding levies but instead taking the decision on appeal at the Supreme Court,” said the association’s chair, Higgins Mdluli.
“The shortfall from the sugar levies meant that growers and competing millers previously paid extra levies to make up the shortfall, putting them under financial strain. The levies are legislated and allow sugar revenue to be equitably shared to ensure sustainability and inclusivity and keep small-scale growers viable.”
Sugar cane growers in rural KwaZulu-Natal rely on Tongaat mills to crush their cane and produce sugar.
Without Tongaat’s three mills and central refinery in South Africa, many neighbouring farms, large and small, and the broader South African sugar industry will suffer “catastrophic” damage, which threatens the economies of rural KwaZulu-Natal and Mpumalanga provinces, the cane growers association said.
Bessinger said Vision had ambitious plans for Tongaat, including expansion into energy (ethanol and electricity from bagasse).
“These plans include overall yield improvements and will lead to the growth of the area under sugar cane, and the creation of sustainable jobs and small-scale sugar cane growers. With Africa still being a net importer of sugar, Vision is also looking at the potential of new capacity and capability in suitable jurisdictions that have substantial markets and supply deficits.
“Vision is a long-term investor that is committed to creating more sustainable jobs and empowering small-scale sugar cane growers across the regions it operates in. Vision looks forward to a new beginning without any legacy commitments,” Bessinger said.
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