Tongaat shareholders set to receive nothing for their shares

Investors in Tongaat Hulett appear virtually certain to receive nothing for their shares in the severely financially distressed JSE-listed sugar producer and property company.

Peter van der Steen, one of the joint business rescue practitioners (BRPs), said on Tuesday it was already envisaged in the first version of the business rescue plan that it is the intention to delist Tongaat Hulett and this will go into the amended business rescue plan, which is expected at the latest to be published by 31 October 2023.

Bittersweet news for Tongaat shareholders

Van der Steen said the business assets are to be sold out of the legal entities and it is envisaged the remaining legal entities will be wound down and ultimately liquidated.

“The shareholders will retain their shares but will receive no value for their shares,” he said.

“Unfortunately and regrettably that is not the news that … people wanted to hear. I am very sorry to be the bearer of bad news.

“We often do remind folks in the room that we didn’t form part of the breaking of it. We get to try and help as much as we can. We are trying to give it a good tonk.”

The company has been in business rescue since October 2022.

Trading in its shares was suspended by the JSE on 19 July 2022 because of its failure to publish its financial results within the stipulated time period.

Tongaat sugar asset sales

The BRPs previously announced that Tanzania-based Kagera Sugar had been selected as the preferred strategic equity partner to acquire all of Tongaat’s sugar assets, including Tongaat Hulett Limited (THL) in South Africa and its investments in Mozambique, Zimbabwe and Botswana.

Van der Steen said the proceeds from the Kagera Sugar sale are estimated to be R3.6 billion plus the assumption of the post commencement finance (PCF) facility of about R1.7 billion.

He said the proceeds from Tongaat Developments are estimated to be about R600 million against business rescue claims of R11.5 billion, which puts a negative equity value of R5.6 billion on THL.

“There are no prospects of there being an excess of asset value over liabilities, which would produce positive returns to shareholders even if it [the various businesses] were to be broken up,” he said.

Van der Steen added that the gap between the realisable value of THL assets from credible bidders and claims against Tongaat is too wide to bridge.

He said that if more value was to be gleaned from the assets through an alternative process, the creditors directly gain from any uplift in value before shareholders see any realisation.

“Secured creditors have the dominant business rescue vote at BR 80%. Creditors [not shareholders] will have the last word,” he said.

ALSO READ: Tongaat Hulett: Ex-executives in R3bn fraud granted bail

Sad legacy

The Financial Sector Conduct Authority (FSCA) fined THL in August 2002 after it found the company made false, misleading or deceptive statements, promises or forecasts in its public statement to the markets over six years prior to the publication of its 2017 and 2018 annual financial statements.

The FSCA imposed an administrative penalty of R118.34 million on Tongaat for contravening the Financial Markets Act but noted Tongaat’s then financial position and, to avoid penalising innocent Tongaat shareholders further, decided to remit a portion of the administrative penalty and issued an order for Tongaat to pay a penalty of R20 million.

This was subject to Tongaat’s commitment to continue cooperating fully with the FSCA in all future actions taken against any persons allegedly responsible for the wrongdoing.

Civil and criminal proceedings against former directors

Tongaat subsequently instituted both civil and criminal proceedings against former directors of the company.

It reported in February 2022 that six former company executives – Peter Staude, Murray Munro, Michael Deighton, Rory Wilkinson, Kamlasagrie Singh and Samantha Shukla, and Deloitte audit partner on the Tongaat audit Gavin Kruger – had appeared in the Durban commercial crime court in relation to fraud charges and were all granted bail.

The charges stemmed from alleged fraudulent activity between March 2015 and September 2018 related to the alleged backdating of land sale agreements, which had a significant impact on the company’s financial results and led to a significant loss in shareholder value.

ALSO READ: Another top exec resigns amid Tongaat Hulett scandal

Civil action timing

Tongaat company secretary Johan van Rooyen said on Tuesday that in regard to the civil matter, the company issued summons against the former directors for R250 million and this litigation process is ongoing.

Van Rooyen said they are at the end of closing proceedings in terms of pleadings and are hoping to enrol that matter for trial.

“In terms of the court’s ability to accommodate these cases, it seems like it will be early 2025 or middle 2025 that we will get a court date,” he said.

Van Rooyen added that the National Prosecuting Authority (NPA) is driving the criminal proceedings “quite hard”.

He said there are a few interlocutory applications from the accused challenging some of the decisions of the NPA on the charge sheet and the racketeering charges, which need to be resolved.

Van Rooyen said some of those applications will be heard by the end of the year and the NPA will probably only be ready to proceed with that trial late in 2024.

Van der Steen said the proceeds of such civil claims forms part of the THL lender group’s security and therefore any proceeds from it will go to the lender group.

Deloitte settlement

In February, the BRPs announced that former auditors Deloitte had agreed to pay Tongaat R260 million without any admission of liability to settle claims against the firm.

Van der Steen said these proceeds went to Tongaat’s lender group.

Responding to a comment that the settlement amount appeared to be low, Van der Steen said it was an enormously complex claim process and, after the advice and analysis, it was deemed to be a fair settlement amount and it was also in the interest of the business rescue to have an expeditious settlement to maintain stability.

“If the shareholders intend or would like to pursue a claim against the auditors, we suggest they take their own independent legal advice,” he said.

No ‘magical outcome’

Analyst and investor David Woollam said the comments by the BRPs that shareholders are unlikely to get anything for their shares did not come as a surprise to him.

“Maybe some people have been hoping for the sake of hope that there might be a magical outcome that will deliver something to the shareholders” he said.

“But if one has looked at these numbers for the last 12 months, it became increasingly clear from the simple formula of assets minus liabilities that it was going to yield a negative number.”

Woollam doesn’t believe there is much prospect of people being able to sue players, such as the board or other parties, because it is the company that suffered the loss and only the company can seek the recovery of damages.

He said there is a certain amount of moral and societal victory that can be achieved by prosecuting people criminally.

However, he added that the actual financial prospect of civil recoveries are practically irrelevant because the people who have been implicated do not have the financial resources that would make a difference.

Who is to blame?

Woollam said the demise of Tongaat was caused by incompetence and poor judgment by everybody who was involved from the board to management to new boards to new management to regulators.

“Ultimately the BRPs were handed what is now a rotting carcass. It’s hard to blame them for all the problems. They inherited this thing,” he said.

Woollam questioned how two and a half years ago people were told Tongaat’s property assets were worth R8 billion alone and now people are being told the whole group is only worth R3.5 billion.

“It seems to me a lot of people need to ask questions as to how that came about,” he said.

This article is republished from Moneyweb under a Creative Commons licence. Read the original article.