Tongaat rescue plan: ‘Creditors have the final say’

The business rescue practitioners (BRPs) of financially distressed Tongaat Hulett have confirmed that creditors will vote and have the final say on the proposed rescue plan for the JSE-listed sugar producer and property group.

The BRPs, Metis Strategic Advisors, were responding to questions from Moneyweb about the relevance of preferred bidder status in the business rescue process.

This became important following reports that businessman Robert Gumede’s Terris Sugar-led consortium had acquired the banking lender group’s claims and security against the Tongaat Hulett Limited group of companies.

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

They 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.

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However, there have been media reports suggesting that Kagera Sugar has been unable to raise the funding for the transaction.

Metis was this week not prepared to confirm or deny the accuracy of these reports.

They added that, as committed when they announced the preferred bidder, they will update the market through the Stock Exchange News Service (Sens) and through the affected persons’ reports and the updated business plan.

“It is therefore not appropriate for us to provide detailed information on the current SEP process outside of the formal communications channels.

“As communicated recently, in line with BRP regulation, credible alternative offers may be presented for consideration by creditors,” they said.

“The creditors will vote on the business plan, and they have the final say. This is a creditor-driven process.”

Kagera outfoxed

Metis further said it has only received verbal confirmation of the transaction between the Terris Sugar-led consortium and Tongaat Hulett’s banking lender group and has not yet received formal notification from either party.

“The BRPs are considering the potential impact on the business rescue process. Our initial views are that this development is likely to be positive for both affected persons and the company.

“The BRPs are awaiting formal confirmation of the completion of the transaction and will communicate the way forward in due course and through the correct forums,” they said.

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Shareholder activist Chris Logan said the Gumede consortium has outfoxed the preferred bidder Kagera by going directly to the lenders and buying their debt at a discount.

Logan added that any action or recommendation of the BRPs has to be approved by the creditors “so Gumede’s already got that wrapped up and he can dictate terms and they are going to make fortune”.

He said it is not known at what discount they bought the bank lending group’s debt but believes it was “a huge discount that was related to the R3 billion that was part of the Kagera preferred bid where the banks were going to lose a lot anyway”.

“They have done an extraordinary deal, facilitated by the IDC [Industrial Development Corporation] not allowing a value creative disposal process.

“The IDC ensured that a very low bid would emanate for the Tongaat assets because they insisted that the sugar operations be sold as a combined entity, so Mozambique, Zimbabwe and South Africa,” he added.

“That precluded numerous bidders, including a number of international bidders who can’t have anything to do with Zimbabwe because of sanctions.”

Logan said the other African operations are totally different in that they have different laws, different languages and a different sugar regime.

He said there were bidders for the individual operations, “and it was big numbers”.

Logan added that the whole history of Tongaat never made sense because it sacrificed cash-generative assets to try and keep these combined operations in place.

“Over the last five years, from 2018 to 2022, it (SA Sugar) made a R2.1 billion operating loss, and they couldn’t access the profits from Zimbabwe and Mozambique, as the BRPs highlighted in a shareholder presentation,” he said.

Comment was requested from the IDC but has not yet been received.

Rescue plans

Creditors of Tongaat Hulett Limited, Tongaat Hulett Sugar South Africa and Voermol Feeds recently voted in favour of an extension of the publication dates of the companies’ respective amended business rescue plans to no later than 24 November 2023.

The meetings to vote on the plans will take place by no later than 30 November 2023.

Metis confirmed that for a business rescue plan to be adopted, it must be supported by the holders of more than 75% of the creditors’ voting interests that were voted, and the votes in support of the business rescue plan must include at least 50% of the independent creditors’ voting interests, if any, that were voted.

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The business rescue plan of Tongaat Hulett Developments was released on 19 May 2023 and adopted on 30 May 2023, with creditors voting overwhelmingly in favour of the plan, which is in the process of being implemented.

Commenting on the reasons for amendments to the business rescue plans for Tongaat Hulett Limited, Tongaat Hulett Sugar South Africa, and Voermol Feeds, Metis Strategic Advisors said the first business plan release on 31 May 2023 was a somewhat “conditional” plan because certain creditors required the BRPs to publish a business rescue plan focusing on process rather than detailed outcomes at the time.

They said the BRPs would have preferred to publish a business rescue plan that contained details relating to the outcomes of specific transactions, which had been agreed to, subject to the approval of a business rescue plan.

“Since then, the BRPs received agreement from creditors for extensions to provide additional time for the conclusion of the sale transaction(s) and for the incorporation of transaction information in the plans.

“In addition, it allows for the specification of recoveries and expected distributions to the various classes of creditors of the companies,” they said.

Delisting and asset sales

Peter van den Steen, one of the joint BRPs, confirmed in September that it was already envisaged in the first version of the rescue plan that the intention was to delist Tongaat Hulett and this would go into the amended business rescue plan.

Van den Steen added that 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.

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

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