Tongaat Hulett, the 130-year-old South African sugar maker, is being placed in administration after failing to recover from an accounting scandal that exposed a mountain of debt.
The decision was taken after creditors rejected a restructuring plan that would have given the company leeway on some of its outstanding loans and access to R1.5 billion ($84 million) needed to keep operations going.
Tongaat had repaid about half of the R12 billion of debt that emanated from the scandal that erupted in 2019.
“On Friday night, we were told that the banks aren’t supportive, which meant that we were not going to get additional liquidity that we needed to keep the business going,” Chief Executive Officer Gavin Hudson said in an interview on Thursday.
“The responsible decision was taken to voluntarily place the business into rescue.”
Founded in 1892 and taking its name from the uThongathi River in the southeastern KwaZulu-Natal province, Tongaat operates three mills with the capacity to crush more than 4.8 million tons of cane a year, according to its website. The company has 23,000 full-time employees, its latest annual report shows.
In addition to the heavy interest rates on its outstanding loans, the Durban-based company’s ability to make money was hindered because inadequate plant maintenance led to a slowdown in sugar production in South Africa.
Tongaat has considered various options to raise cash. It won shareholder backing earlier this year for a 4 billion-rand rights offer to keep the company afloat, but by June had failed to obtain regulatory approval for the discounted fundraising.
The company had insufficient money for operations at the end of its financial year in June and Johannesburg’s main stock exchange suspended Tongaat’s shares the following month after the company delayed reporting earnings.
Tongaat’s sugar operations in Botswana, Mozambique and Zimbabwe aren’t financially distressed and will continue trading, the company said in a separate statement.
To free the business of debt, the restructuring plan presented to lenders included the sale of its African operations outside of its home market as well as a debt-to-equity conversion on its extensive property holdings.
“After spending much time looking at the scene from all angles, we felt that was the best solution,” Hudson said. “So the board and management were very surprised when the lenders did not accept the restructuring plan.”
The lenders consisted of 10 institutions, with the country’s biggest commercial banks including Standard Bank Group, FirstRand, Absa Group, Nedbank Group, and Investec Plc among them.
Despite entering administration, Tongaat plans to continue operating for the time being, Hudson said. The company has about a million tons of cane with its growers that needs to be cut and crushed. That will give it about 100,000 tons of raw sugar valued at about R1 billion.
“Our message to our employees is guys, let’s just get our heads down,” Hudson said. “Let’s keep working.”
Hudson also hasn’t written off the possibility of an outside supporter offering a cash injection.
“Even now as we sit in business rescue, it doesn’t mean the proverbial white knight can’t swoop in and do something for the business,” he said.
While there aren’t any potential investors lined up, “I assume that there will be a lot of interest.”