Tongaat Hulett business rescue practitioners (BRPs) have unveiled their business rescue plan for the group’s property division, Tongaat Hulett Developments (THD), which involves selling assets, cutting jobs and ultimately to wind down the company.
In a media statement, the practitioners said they would release the business rescue plans for holding company Tongaat Hulett and subsidiaries Voermol Feeds and Tongaat Hulett Sugar South Africa by the end of the month. “The optimal manner in which to realise value for creditors is to dispose of assets [of the Tongaat property portfolio] in a controlled manner,” the practitioners said in their plan which was released on May 19. Tongaat Hulett and its subsidiaries have been in business rescue since the end of October last year.
Tongaat creditors will vote on the THD business rescue plan at a meeting on May 30. “The extent of the challenges faced by Tongaat Hulett, and its current strained financial position, are well publicised and arose from years of high and increasing debt levels, financial misstatements and historic mismanagement,” the practitioners wrote. During 2019, a forensic investigation uncovered material accounting irregularities that resulted in the restatement of the company’s historical financial information.
The restated financial statements reflected R2.3-billion had overstated the company’s total assets, and the company’s total liabilities (excluding deferred taxation) had been understated by R849-million.
“As a consequence of the accounting irregularities, the company’s former directors and senior executives are currently engaged in criminal and civil proceedings,” said the practitioners said. Tongaat had property assets of about R2-billion at the end of October last year but owed creditors R7.7-billion by the end of April 2023, including R7.2-billion owed to secured creditors such as Standard Bank, Nedbank, Absa, FirstRand group banks, Investec, the Land and Agricultural Development Bank of South Africa, Momentum Metropolitan Life and Ashburton Fund Managers.
“Regrettably, it is not anticipated that there will be any return for the company’s shareholders,” the practitioners said. “Ultimately, the business rescue contemplates a controlled wind-down, winding-up/liquidation and/or deregistration of the company and relevant subsidiaries of the company,” the practitioners said. “Net effect of the business rescue will be the realisation of better distributions to creditors that would have been the case if the company had been immediately liquidated,” the BRP wrote in the plan.
BDO, a company advising the practitioners, and prepared the independent liquidation dividend estimate, put the net realisable value of the company’s assets to be about R177-milliom against its liabilities, including contingent liabilities, to be R7.5- billion.
“On successful implementation of the business rescue plan, secured creditors are, in the aggregate, expected to receive distributions of around seven cents in the rand compared to 2.5 cents forecast if the company went into liquidation,” the practitioners wrote. “The currently realisable value of its property portfolio (i.e. immediate sale without further development) is materially less than its current obligations,” said the practitioners.
The BRPs said the company intended to start a Section 189 process that would lead to the retrenchment of employees. The BRPs wrote that they would aim to limit job losses, but the envisaged retrenchments were required given the company’s financial distress and inevitable winding down. Tongaat employs 2 500 people, and during the peak of the sugar season, the company employed over 23 0000 people, created more than 185 000 employment opportunities and provided a livelihood to over 21 000 farmers – most of whom are small-scale black growers. Retrenched employees would be entitled to their full contractual retrenchment packages, the practitioners said.
Tongaat owns 14 sugar production facilities that can crush 12.7 million tons of sugarcane. For the business rescue plan to be adopted, creditors with over 75% of the voting interest must vote in support of the business rescue plan, and the vote needs to include at least 50% of the independent creditors’ voting interests. If the Tongaat creditors approve the BRPs’ plan, the BRPs expect to substantially complete the sale of the group’s property portfolio within one year of the plan’s approval.
Tongaat owns land primarily located in KwaZulu-Natal. Over the past three decades, the company has rezoned, serviced and sold about 4,000 hectares of land comprising about 5.5 million square metres of bulk developable rights. Through the sale of the land, the company has facilitated the creation of numerous prominent developments in the province, including Mount Edgecombe, La Lucia Ridge, Gateway, Umhlanga Ridge Town Centre, Zimbali, Izinga, Sibaya and Cornubia.
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