Tongaat faces 11th hour court actions ahead of meeting to vote on takeover

Tongaat Hulett and Tongaat Hulett Development entered business rescue in October 2022. Photo: Supplied

Tongaat Hulett and Tongaat Hulett Development entered business rescue in October 2022. Photo: Supplied

Published Dec 7, 2023


Tongaat Hulett said RCL Foods & Sugar and the Sugar Association of South Africa (Sasa) had launched urgent High Court applications yesterday to prevent Tongaat’s business rescue proceedings from continuing.

The applications come only a day before Tongaat’s creditors are scheduled to vote on the business rescue plans, which outline two possible suitors for Tongaat.

RCL sought an interdict to prevent the meeting of Tongaat’s lenders tomorrow and that the business rescue plans be declared unlawful and set aside.

RCL has had to make additional payments to the Sasa because Tongaat and another sugar producer Gledhow Sugar Company were not paying their statutory industry obligations.

Sasa in its application, sought an interim interdict to stop the business rescue practitioners from proceeding, and that the business rescue plans be declared unlawful. Sasa sought that its application be heard today.

The new applications follow hard on a High Court judgement on Monday, which dismissed Tongaat Hulett’s application it made in May to suspend, for the duration of the business rescue proceedings, all the obligations and payments that Tongaat had that arose out of the Sugar Industry Agreement.

The SA Canegrowers association said this week it welcomed the High Court’s dismissal with costs the application by Tongaat Hulett and the Business Rescue Practitioners, to challenge the financial obligations on the miller in terms of the Sugar Act and the Sugar Industry Agreement.

The order had followed the failure of Tongaat Hulett and Gledhow mills to pay more than R1.5 billion due to Sasa at the end of March 2023. As a consequence of these defaults, the final RV price for growers in the 2022/2023 season dropped by more than R400 per ton, with significant financial implications for growers and compromising the sustainability of their operations.

Tongaat Hulett and Tongaat Hulett Development entered business rescue in October 2022. The business rescue plan, the version that has the RGS consortium as a preferred bidder, said that Tongaat had since April 2023 restarted payment of its Sasa obligations, and R771 million had been paid to Sasa as at October 31, for local market redistribution charges and levies that had arisen since April 1, 2023.

The Sasa amounts charged between October 28, 2022 and March 31, 2023 had not been paid and Tongaat treated these payments the same as its other unsecured creditors, Tongaat’s business rescue practitioners said.

They said amounts owed to Sasa as at the commencement of business rescue on October 27, 2022 amounted to.R420m, increased by levies of R59m, leaving R479m that had “similarly not been discharged.”

RCL CEO Paul Cruickshank said in the annual report that the statutory earnings before interest tax depreciation and amortisation of their sugar division had been reduced by R234.4m in the year to June 30, being the impact of the sugar industry special levy in the second half of the financial year.

“Legal process is underway in relation to Tongaat’s non-compliance with its statutory obligations owed to Sasa under the Sugar Industry Agreement.“

On Friday, Tongaat’s lenders, who are owned some R7.7 billion, will vote on two offers to take Tongaat out of business rescue, one by the Mozambican family owned group RGS, which has made a debt for equity offer, plus some R500 million in working capital.

The second bidder that the lenders will vote on is the Vision Consortium, which has Terris Sugar and South African businessman Robert Gumede among its main investors.

RGS Holdings is owned by the Gulamo family and produces sugar in Marromeu, Sofala province in Mozambique, but it also has businesses including tobacco, a tea estate, beverages, edible oils and cereals.

Tongaat’s business rescue practitioners (BRP’s) want to rescue Tongaat to avoid the otherwise catastrophic social impact that would result from a liquidation - its operations employ more than 23 000 people, support more than 185 000 employment opportunities and provide a livelihood to more than 21 000 farmers, many of whom are small-scale growers.

Opportune Investments Chief Investment Officer Chris Logan said the court applications were not unexpected after this week’s judgement to dismiss Tongaat’s earlier application.

He said Tongaat could be turned around with new investors, as some maintenance work would have been undertaken during the business rescue process, the sugar price was relatively high at present, the property business could turn around, while the Mozambique and Zimbabwean operations remained profitable, and could even be sold if necessary.