Tongaat Hulett business rescue to have dire consequences on sugarcane growers

The news of Tongaat Hulett going into voluntary business rescue will have catastrophic consequences for South Africa’s sugarcane growers and value chain.

This is according to the South African Cane Growers Association (SA Canegrowers).

Financial distress

On Thursday, Tongaat announced that two of its operations in South Africa would be placed under business rescue.

The company, which has in recent years been rocked by allegations of mismanagement and financial misstatements, currently has a debt burden of R6.3 billion.

The debt was cut down from R11.7 million.

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In a statement, Tongaat explained that its debt levels remained well in excess of what could be serviced and delays in its recapitalisation had worsened the situation.

“The South African lender group has informed the company that in all of the circumstances of the restructuring plan, they are unable to support the restructuring plan or to provide the additional funding required. Consequently, the repayment date of the borrowing base facility will not be extended,” the company said.

Tongaat, which has a working capital shortfall of R1.5 billion, had secured a R600 million short-term base facility from a South African lender and was now due for repayment.

“Without the required additional funding, and an extension of the repayment date of the borrowing base facility, and having taken extensive legal advice, the board has determined that Tongaat Hulett is facing circumstances constituting financial distress.”

Farm workers to go without pay

Now SA Canegrowers has expressed concern that Tongaat may not be able to honour a payment of R401 million owed to growers for sugarcane delivered in September.

According to the association, this will have dire financial consequences for growers as well as the farm workers they support.

“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,” SA Canegrowers said in a statement.

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“This move means that Tongaat Hulett has lost access to its bank accounts, which in the immediate term means that over R401 million that was due to be paid to growers at the end of October 2022 will likely not be transferred on time,” the association continued.

SA Canegrowers said “any default on these payments will have devastating impacts on their livelihoods, as well as the communities they support”.

If mills go down, growers go down

Questions, the association highlighted, also remain about how payments will be made for deliveries in October, November, and December.

This means the impact on growers is likely to worsen if the mills do not remain operational, according to SA Canegrowers.

“Although the sugar industry has been aware of Tongaat Hulett’s financial woes, the decision to enter into business rescue at this time has come without warning.

“As the surrounding mills in the province lack the ability to take on Tongaat Hulett’s deliveries, the decision also has serious short and long-term implications for the supply of sugar to the local market,”  the association said.

Payments due to growers should be prioritised

Meanwhile, SA Canegrowers further said that it will follow all relevant steps to engage with the business rescue process in order to ensure that payments due to growers were prioritised.

The association in the meantime has called for urgent action to prevent the catastrophic social consequences that will arise if the immediate threat of non-payment materialises over the next few days.

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