/ 9 January 2024

RGS abandons Tongaat bid, claims business rescue is rigged

Tongaat Hulett

In another dramatic turn of events, RGS Holdings has withdrawn its business rescue plan for Tongaat Hulett Limited (THL) ahead of Wednesday’s crucial creditors vote, claiming the process has been rigged in favour of Robert Gumede’s Vision consortium.

RGS and Vision had both submitted rescue plans to business rescue practitioners Metis, which were set to be voted on by creditors of the troubled sugar giant on Wednesday, but it is understood that the vote will now go ahead with only one bidder.

Tongaat entered voluntary business rescue in November 2022 after losing 95% of its value in a R3.5 billion accounting scandal over which former chief executive Peter Staude and a group of managers and accountants have been charged with fraud.

The process has seen both RGS and Tongaat’s creditors — including the South African Sugar Association and RCL Foods — turn to the courts ahead of Wednesday’s vote, which has been postponed several times.

On Tuesday, RGS executive chairperson Aquil Rajahussen wrote to Metis, informing them of the decision by the RGS board to withdraw its plan, which had, like Vision’s, been amended several times during the process.

Rajahussen said they had previously written to Metis expressing “serious concerns” about the way in which they had conducted the business rescue process at Tongaat Hulett.

The process had been repeatedly postponed, both over legal issues and to allow time for Vision to secure funding for a proposed buyout of Tongaat’s bank debt from a group of lender banks.

“In the RGS view the BRPs [business rescue practitioners] have not conducted themselves appropriately in accordance with their duties and obligations as business rescue practitioners, nor in the interests of THL and its stakeholders,” he wrote.

Rajahussen said that the BRPs had “consistently taken steps to place impediments in the way of RGS’s proposals and have been patently biassed in favour of the proposals put forward by the Vision Parties”.

“The [RGS] board simply does not trust that the BRPs are honest independent professionals in this process as they should be and believes that the BRPs will continue to work against RGS even if the RGS plan were to be adopted,” he added.

Rajahussen said the BRPs had used confidential information in an amended RGS bid to assist Vision in addressing deficiencies in its rescue plan, and had also leaked information to the media to try to discredit RGS and its proposals.

In the face of this “hostile” action by the BRPs, the RGS board could not “risk” paying R2 billion to the group of banks holding R8 billion in Tongaat debt, prior to the conclusion of the transaction.

Because of the risk of Vision going to court if RGS was successful — and the likelihood of the BRPs “actively working” to assist Vision or to delay the implementation of the RGS plan — the company would not make any payment to the banks before the transaction was concluded.

Given that the banks would not accept this, it was “more appropriate” that RGS withdraw at this point, he said.

Rajahussen said RGS believed that it had presented a rescue plan that was “more advantageous” to all stakeholders and that it would have been a better partner for the local sugar industry.

“Had the process been run fairly and independently and in the interests of the THL and its stakeholders, RGS is firmly of the view that the RGS BR plan would have been the only one of the two plans up for consideration at the meeting,” he said.

A spokesperson for Metis denied the allegations that they had rigged the process in favour of Vision.

“The BRPs strongly refute the baseless allegations made in the letter that was directed at them. These allegations will be dealt with at the appropriate time,’ the spokesperson said.