TONGAAT Hulett has advised shareholders that the Board has commenced voluntary business rescue proceedings for two operations in South Africa, Tongaat Hulett Limited and Tongaat Hulett Development Proprietary Limited. These operations are planned to move ahead under the business rescue process.
In a media statement issued on October 27, the company said that the Board believes that business rescue is the most responsible step in the circumstances. The Board believes business rescue should potentially result in a better return to stakeholders than a forced liquidation.
Tongaat has faced significant challenges following years of high and increasing debt levels, alleged financial misstatements and historic mismanagement under previous leadership.
The new leadership team and Board have worked since 2019 on delivering a comprehensive turnaround strategy. Progress was made on a variety of fronts, including realising cost savings and improving available funding. Debt, specifically, has been reduced by more than R6,6 billion from a high of R11,7 billion. Despite the good progress, there is a shortfall in the Company’s working capital facilities of approximately R1,5 billion, largely driven through the impact of Covid-19 and the recent unrest in KwaZulu-Natal. This shortfall is necessary to fund the peak working capital requirements to complete the 2023 financial year.
The South African lender group informed the Company that it will not be able to continue supporting the company with additional funding in South Africa.
Without this funding, the Board concluded that Tongaat is, or would be, facing “financial distress”, as defined by the Companies Act and that the South African operations are no longer financially sustainable without further liquidity. In this context, the Board resolved to commence voluntary business rescue proceedings for the Company in line with the Companies Act. The Board resolution and a sworn affidavit stating the reasons for going into business rescue have been filed with the Companies and Intellectual Property Commission (CIPC), with the finalisation of their processes in development.
Peter Van den Steen, Trevor Murgatroyd and Gerhard Albertyn of Metis Strategic Advisors will be appointed as the business rescue practitioners and are highly experienced and well-qualified, having completed various high-profile business rescues in South Africa in recent years.
Within ten days of the appointment of the business rescue practitioners, they will host the first meetings of employee representatives and creditors.
Tongaat CEO Gavin Hudson said: “Although this is not the outcome we were hoping for, the start of business rescue is not the end for Tongaat Hulett’s South African operations. Business rescue provides a legal framework that allows the business rescue practitioners to work with key stakeholders to find optimal solutions to our financial difficulties. Tongaat has a proud 130-year legacy and is a significant player in agriculture in South Africa. We have dedicated people working very hard to find the best way forward, and the leadership team is committed to working closely with the business rescue practitioners to ensure a successful outcome to the restructuring of the company that protects those associated with Tongaat.”
Business rescue and not liquidation
While the Company has interest from both existing shareholders and potential new equity investors to support the recapitalisation and retain its existing operating footprint, no-one has been able to provide the total funds required within the time needed to do so.
The South African lender group has remained supportive of the Company and has worked constructively with management since 2019. To assist with the c.R1,5 billion liquidity shortfall, the lenders advanced a new borrowing base facility of R600 million on July 29, 2022, which was due for repayment on October 25, 2022. The lenders informed Tongaat they were unable to further extend the repayment date for the borrowing base facility.
