Tongaat Hulett in deep trouble

Corporate activist Dave Woollam said Tongaat Hulett is in deep trouble and that the current path is not helpful to save the company and protect jobs.

Woollam is a highly experienced investor and executive who served as the financial director of BoE and the managing director of African Bank.

He was also a non-executive director at numerous companies, including 10X Investments, Transaction Capital, and The Efficient Group.

Tongaat Hulett, a prominent South African sugar producer, experienced a catastrophic downfall due to an accounting fraud scandal.

Key executives manipulated the company’s accounts to inflate profits over several years. Most of the fraud was related to the property division.

Tongaat Hulett’s inflated profits were used to justify hefty bonuses and share options for the top executives.

When the fraud came to light, the company was forced to restate previous financial results, which resulted in a staggering R12 billion write-down in the company’s value.

As a result, the company was shown to be highly overleveraged, with a debt stockpile of R6.6 billion. 

On 27 October 2022, Tongaat Hulett Limited and Tongaat Hulett Development Proprietary Limited entered voluntary business rescue.

Tongaat Hulett’s Botswana, Mozambique, and Zimbabwe sugar operations are not financially distressed and continue trading normally.

In January 2024, the business rescue practitioners (BRPs) announced that creditors voted in favour of the Vision Parties (Vision) business rescue plan.

The plan included acquiring R8 billion of lender group claims and converting R4.1 billion of such claims into new equity in Tongaat Hulett.

Converting R4.1 billion debt into equity was set to strengthen Tongaat Hulett’s balance sheet and help the company survive.

However, earlier this month, AmaBhungane reported that the Tongaat Hulett business rescue is in deep trouble.

This followed an explosive final affidavit filed in the Durban high court by businesswoman Mohini Naidoo, challenging the BRP’s and the Vision consortium selected to buy up debt.

Naidoo argues that the BRPs and the lender group have allowed Vision to pay for a significant part of the purchase price out of the sale assets of Tongaat Hulett.

She said this indulgence is not extended to other bidders, which makes it unlawful because creditors have not authorised it.

This case has given existing shareholders some new leverage. It also means the troubles surrounding Tongaat Hulett are far from over.

Dave Woollam explains the challenges

Dave Woollam told Biznews that many vultures who earn fees are feasting on the company’s carcass.

He added that the bankers, who are owed billions, delude themselves by charging notional interest on debts that will never be repaid.

Woollam said Tongaat Hulett’s operations in Mozambique and Zimbabwe are strong and continue to perform well.

“Zimbabwe is one of the best sugar estates in the world, producing 500,000 tonnes of sugar at some of the highest yields globally,” he said.

“Mozambique is a fantastic operation. We know there have been offers for approximately $200 million for Mozambique.”

However, these operations have been neglected because of the problems with the holding company in South Africa.

“There has been no money and no management time. They’ve been neglected and suffer from a lack of management oversight,” he said.

Woollam further questioned the business rescue practitioners’ decisions and the lack of transparency.

“We’ve had bidders coming in and going out. We’ve had no transparency. We’ve asked the BRPs to give us information, but we have not had any financials,” he said.

He added that Tongaat Hulett’s last audited annual report was for the financial year that ended in March 2021.

“We believe that’s a fundamental transgression of the listing requirements because they are a listed company,” he said.

He told Biznews that Tongaat Hulett’s core businesses remain strong and generate cashflows. However, its debt burden is dragging it down.

Another problem is that the banks holding most of the debt do not want to take decisive action, which hampers progress.

“I estimate that of the R8.5 billion owed to the banks, around R4 billion is just interest accumulated in the last three and a half years,” he said.

The banks charge around 19.6% interest on the debt because these loans are in default. “No company can pay 19.6% interest rates and survive,” he said.

A further challenge is that many law and advisory firms charge high fees without adding much value to saving Tongaat Hulett.

“We have had more law firms and advisory firms than you could fill a page with, and no doubt they’re being paid,” he said.

“I have no problem with that, but they need to deliver some success. At the moment, we’ve seen no success at all.”

Woollam the banks, shareholders, and other stakeholders to work towards a solution that limits the unfolding damage.