/ 7 March 2022

Mauritius-based company set to own majority stake in Tongaat Hulett

Tongaat Hullet 7930 Dv
Sugar producer Tongaat Hulett said on Thursday it had been placed under business rescue as a result of its debt burden. (Delwyn Verasamy/M&G)

The competition commission announced on Monday that it had approved the takeover of Tongaat Hulett by Magister Investments, with conditions. 

Mauritius-based Magister Investments has committed some R2-billion to underwriting a Tongaat rights issue, meaning it will own 60% of the latter’s shares. Magister currently holds a minority shareholding of 0.15% in Tongaat. 

The rights offer has been capped, and may not exceed R2-billion, Tongaat said in November 2021 when it announced the proposed major recapitalisation through a rights offer of new shares. 

The sugar producer said the proceeds from the rights offer would be used to reposition the group  sustainably and help to secure the future of its about 29 000 (at peak harvest season) employees in operations across South Africa, Zimbabwe, Mozambique, and Botswana.

According to the competition commission, the transaction is unlikely to result in a substantial prevention or lessening of competition in any relevant markets. However, it approved the takeover on condition that Magister stick to its investment commitments into Tongaat.

One condition of the takeover is that both Magister and Tongaat may not dispose of any employees for at least one year after the transaction. The commission must be informed of any retrenchments for the next three years. 

Magister will also be required to establish an employment share ownership plan which  will hold an effective 5% in the South African operating subsidiary of Tongaat. Tongaat’s black economic empowerment (BEE) shareholding must be at least the same as it was prior to the transaction.

The commission noted that Tongaat plays a crucial role in socioeconomic development in KwaZuluNatal and was concerned about the effect of the transaction on development in the region. It, thus, also put conditions in place requiring Tongaat to source at least 40% of its feedstock from historically disadvantaged people. Tongaat currently sources almost half of its feedstock from black farmers and co-operatives.

Tongaat is also required to participate in the implementation of South Africa’s sugar masterplan, an initiative that seeks to protect jobs, rural livelihoods and businesses while boosting the demand for the commodity. In addition, at least 20% of any land belonging to Tongaat sold after the takeover must be to historically disadvantaged people. 

Last month, former Tongaat chief executive Peter Staude and six others accused of defrauding the company of R2.5-billion finally appeared in court, just more than two years after fraud charges were laid against them.

On Monday, Makwe Masilela of Makwe Fund Managers bemoaned the fact that yet another company would now be owned by a foreign entity.

“It’s the same story we’ve seen with AB-InBev and SABMiller,” Masilela said.

Anathi Madubela is an Adamela Trust business reporter at the M&G.