Big plans to save iconic 134-year-old South African sugar company from liquidation and save 250,000 jobs

Tongaat Hulett’s new owners, who saved the iconic sugar producer from liquidation, plan to diversify the company’s offerings and pivot it toward an agri-energy model.

This will see the sugar producer generate excess electricity to sell to Eskom and the eThekwini Municipality, produce carbon dioxide (CO₂) for industrial use, and develop fuel from sugarcane.

This is feedback from South African businessman Robert Gumede, who is a shareholder in the Vision Consortium, one of the groups that saved Tongaat from liquidation.

Earlier this year, Tongaat’s business rescue practitioners (BRPs) announced that they had filed for provisional liquidation, as there appeared to be no possibility of successfully exiting business rescue.

However, at the last minute, Vision and the Industrial Development Corporation (IDC) reached a deal that will see Tongaat remain in business rescue and avoid liquidation.

The agreement is structured so that the IDC holds a 25% stake in the business, while Vision and the IDC combined hold approximately 68% of Tongaat’s South African operations.

This Hail Mary deal will save an estimated 250,000 jobs across the sugar value chain, with Tongaat playing a critical role in the local sugarcane industry.

However, while Tongaat may have avoided liquidation, there is still a lot of work to be done to make the company sustainable and profitable.

To start with, Gumede told Newzroom Afrika that a critical component of Vision’s deal with the IDC is Tongaat’s financial restructuring, which will take the form of a debt-to-equity conversion. 

According to Gumede, this plan should eliminate Tongaat’s substantial debt burden and create a stronger, debt-free balance sheet.

This, in turn, will restore operational certainty and enable better borrowing terms and supplier lines of credit for Tongaat in the future.

He explained that Vision is aligned with the IDC in how they want to revitalise Tongaat and what the sugar producer’s future holds.

From sugar producer to agri-energy giant

Aside from cleaning up Tongaat’s balance sheet, Gumede outlined big plans for how Vision and the IDC plan to ensure the company’s future sustainability and avoid business rescue in the future.

Gumede emphasised that the goal is not for Tongaat to operate solely as a sugar business anymore. Instead, Vision plans to pivot the business toward an Agri-energy model.

“We want to produce electricity, which we currently do for our own operations. But now we want to produce excess power that we can sell to Eskom and sell directly to the eThekwini Municipality,” he explained.

“For us to be able to generate this additional electricity, it means we need more cane than what we have today.”

“So, it means we’re going to have more sugar, but more importantly, we are going to produce more power.”

Tongaat will now also be developing and producing CO₂, with Gumede identifying South African gas giant Afrox as its offtaker.

Vision also wants to position Tongaat as a player in the fuel-producing industry, using sugarcane to produce fuel, as has been done in countries like Brazil.

From a management perspective, Gumede said Tongaat’s fall came as a result of fraud, rather than operational failure.

Tongaat was forced to enter business rescue after an accounting fraud scandal came to light in 2019.

Around R12 billion in shareholder value was destroyed due to accounting irregularities, financial misstatements, and governance failures under Tongaat’s former management.

“The guys operating the factories have been doing a fantastic job. It was at head office where it is alleged that the management became maverick,” Gumede said.

He explained that, by installing active oversight at Tongaat, the new owners will be able to prevent making the same mistakes and protect the interests of over 15,000 growers. In the long term, Vision plans to grow this workforce to 30,000.