Tongaat Hulett nears rescue as Vision Group’s bid receives green light

In what was described by Tongaat Hulett’s business rescue practitioners (BRPs) as “a great milestone”, the bid by Robert Gumede’s Vision Group for the financially-distressed suspended JSE-listed sugar producer and property developer was overwhelmingly approved on Thursday.

However, there are still big question marks over the funding for the implementation of the business rescue plan, the continued role of the Industrial Development Corporation (IDC) in this and the recapitalisation of Tongaat’s balance sheet.

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The IDC has provided R2.3 billion in post-commencement funding (PCF) to Tongaat but its security for this facility has been partially depleted.

It has indicated that it requires additional security by 26 January 2024 for its PCF facility or it could demand immediate repayment.

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This resulted in the meeting of affected persons to vote on Vision’s plan on Wednesday standing down several times and eventually only resuming again on Thursday.

It does not appear any agreement has been reached between the IDC and Vision on the extension of the PCF or a possible increase in the PCF funding provided by the IDC.

The IDC has not yet responded to questions posed by Moneyweb on this issue.

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It currently appears that Vision will have to engage the IDC and reach an agreement with the corporation on the terms of any extension and/or increase in the PCF facility.

Clarity requested

RGS Group Holdings, which on Tuesday withdrew at the 11th-hour from the bidding process for Tongaat, asked for clarity at the meeting about any agreement between the IDC and Vision on the future funding of Tongaat.

Responding to the question, Danny Andropoulos, the BRPs’ lawyer, said the BRPs cannot answer this question because they have no knowledge of any arrangements concluded between Vision and the IDC.

“What they can say is that there have been discussions between the IDC and the company in relation to the requirement for the provision of security.

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“Vision has certainly been privy to those discussions and no security arrangements involving the company have been concluded as of this moment between the IDC and the company. So that is the categoric state of affairs as per between the company and the IDC.

“The company is very aware of the fact that these arrangements have to be concluded to the satisfaction of all interested parties in a very abridged period of time and I am assured that everything in this regard will be done,” he said.

Long road ahead

Trevor Murgatroyd, a director of BRPs Metis Strategic Advisors, admitted on Thursday the adoption of the Vision business rescue plan “is not the end of the road”.

“This has been a very difficult process and a very challenging business rescue.

“Certainly it’s a great milestone [the adoption of the business rescue plan]. There is still a lot of hard work ahead of us and no doubt further challenges that face us,” he said.

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“With the continued support of the employees, the suppliers, IDC and Vision, we will work together to achieve the substantial implementation of the now approved and adopted business rescue plan as efficiently and as quickly as possible,” said Murgatroyd.

“Substantial implementation will be the new beginning for a company that has been in existence for more than 100 years and has a substantial impact on the economy of KwaZulu-Natal and South Africa.”

Analyst’s take

Analyst and investor David Woollam said the vote was an extremely important milestone because it removes the uncertainty of a business rescue towards implementation of the business rescue.

But Woollam warned that the adoption of the Vision plan “is by no means a conclusion nor is it even a major step”.

“The hard work really begins now. The balance sheet is still weak, the funding arrangements to the IDC are very significant and need to be resolved and the business operations have to be improved.

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“This is only the start and bear in mind that this only approves the business plan proposal,” he said.

“The business rescue practitioners still have to implement the business rescue plan and remain totally in control of the business until they have satisfied their legal and statutory obligations to implement the business rescue plan.”

At Thursday’s meeting, 91.91% of accepted creditor claims exercised their right to vote, with 98.51% of those present and voting, voting in favour and 1.49% against the plan.

The Vision business rescue plan includes:

• The acquisition of the Lender Group claims and security amounting to about R8 billion and subsequent conversion of about R4.1 billion of these claims into new equity in Tongaat Hulett Limited.
• The conversion of about R4.1 billion in debt into equity.
• Shareholders retaining an interest of 2.7% in Tongaat equity after the debt-to-equity conversion.
• The renegotiation of a working capital facility, to be approved by the IDC as PCF in a manner that will result in the extinguishment of the PCF.
• The payment of 100c in the rand to the SA Sugar Association, subject to an appeal process, with Tongaat owing about R1.1 billion in statutory levy payments.
• Tongaat, with support from Vision, securing working capital facilities in the form of ongoing PCF sufficient to fund the Tongaat businesses for the duration of the business rescue process and thereafter.
• Vision transactions do not currently contemplate retrenchments.

Tongaat was placed in business rescue on 27 October 2022.

This followed Tongaat’s lenders rejecting the company’s proposed restructuring plan and to advance further funds to the company.

This resulted in Tongaat’s board announcing it had decided to embark on voluntary business rescue proceedings.

This article was republished from Moneyweb. Read the original here