Sugar producer Illovo Sugar says it is not interested in purchasing Tongaat Hulett’s (above) assets. (Delwyn Verasamy/M&G)
Sugar producer Illovo Sugar says it is not interested in purchasing Tongaat Hulett’s assets after its troubled competitor released its long awaited business rescue plan indicating that the company will be sold.
There are eight potential bidders for Tongaat, but the business rescue practitioners have kept mum on their identities, although three of the offers are reportedly from large entities seeking full purchase, while the others are interested in constituent parts of the company.
“Currently our business remains focused on its own growth imperatives which do not include purchasing any Tongaat Hulett (SA) assets,” Illovo Sugar South Africa’s managing director, Ricky Govender, told the Mail & Guardian.
“As a responsible and proudly South African company, we are invested in securing the sustainability of our local sugar industry, and especially in how to support emerging and small-scale farmers.”
In a statement, Tongaat’s business rescue practitioners said due diligence processes were well advanced, and they expected to receive final offers by the end of June. Offers include strategic equity partners (SEPs) looking to purchase the company in its entirety, as well as those offering partial investment.
The sugar and property company has been struggling with debt, alleged financial misstatements and historic mismanagement under previous leadership and needs R1.5 billion to service its debt.
It entered into voluntary business rescue in October last year. This has caused much strife in the sugar industry because the company could not pay its lenders and its supplier sugarcane farmers for their produce.
Earlier this year, another sugar mill, Gledhow, also entered into voluntary business rescue. This has left farmers with nowhere to take their sugarcane. Tongaat Hulett and Gledhow Sugar’s mill defaults cost growers R1 billion, dropping revenue by 8%, according to SA Canegrowers.
“While we, like all other affected parties within the sugar industry value chain, await the outcomes of the Tongaat Hulett business rescue process, we continue to proactively engage relevant stakeholders to discuss the current challenges,” Govender said.
“Illovo SA is resolute in its dedication to the continued success and growth of the South African sugar sector, and to working hand in hand with all stakeholders to achieve a sustainable and prosperous future.”
Grower-led consortium NewCo proposed to buy Tongaat’s operations late last year. NewCo announced that it had submitted an expression of interest in acquiring the company’s South African mills, refinery, animal feeds subsidiary and other brands and trademarks.
The M&G asked Tongaat’s business rescue practitioners for comment, but they signalled they were not in a position to speak about whether they had been approached by NewCo.
Tongaat also has industrial, commercial, retail and residential properties. The company’s property arm has also been under distress and is also in business rescue.
The majority of Tongaat’s creditors voted in favour of the business rescue plan for the property concern, which entails a structured winding down of the company, its operations and the sale of its property assets. With 92% of creditors voting, 99.8% voted in favour, the business rescue practitioners said.
Tongaat’s lenders had claims totalling R7.7 billion against Tongaat Hulett Developments (THD), which managed and developed Tongaat’s property interests.
The business rescue practitioners explained that Tongaat Hulett Developments was historically dependent on holding company Tongaat Hulett Limited for access to working capital facilities. The financial stability of Tongaat Hulett Developments was therefore linked to the financial stability of Tongaat Hulett Limited.
“The reality is that THD’s liabilities significantly exceed the value of its assets, which will only satisfy around 7% of creditor claims,” the business rescue practitioners said.
“In line with the Companies Act, secured creditors (in whose favour all THD’s assets are secured) rank highest in a business rescue. Due to secured creditors’ claims of around R7.2 billion and the limited funds available to THD, the payment of a dividend to unsecured creditors is unfortunately not possible.”