TONGAAT Hulett (THL), the beleaguered sugar group, will through its “Asset Transaction” proposed in a business rescue plan sell its assets, and will likely be left zero surplus to pay out shareholders, while the remaining listed shell company will be delisted, the business rescue practitioners (BRPs) said on Friday.
Tongaat’s BRPs provided an update on the business rescue following the shareholder meeting earlier this month where shareholders failed to approve resolutions that would have made a share subscription possible, and which would have resulted in THL remaining listed.
The share subscription was required for an earlier business rescue option that would have entailed, among other things, the settling of most of Tongaat’s debt with a debt-for-equity swap.
Another consortium, the Mozambique-based RGS Group that pulled out of the bidding to rescue THL at the 11th hour, has recently said it has a new, better offer to rescue THL than the Vision Consortium.
However, the BRPs said on Friday they were not in any position, and also bound by statute, not to consider any other alternative than to follow the business rescue plan.
The “Asset Transaction”, arising as a result of the failure of the “Equity Transaction”, involves the sale by THL of all its assets (including its businesses as going concerns) to the Vision Consortium, by way of a set off of the purchase consideration for such assets against the lender group claims against THL.
Employees, unsecured creditors and secured creditors would be largely unaffected by such a change in the business rescue process, the BRPs said,
However, the sale of assets would likely realise no surplus for shareholders. The total claims against THL amounted to about R13 billion as at October 31, 2023, and Vision had acquired the claims of the lender group - a loan portfolio with a book value of about R8.6bn - and had paid a deposit.
As at October 31, 2022, the book value of all assets of THL was R5.9bn. Accounting group BDO estimated a “fire sale realisation” of THL’s assets would be R5.1bn.
“From the above it is apparent that after the realisation of assets there will be debt remaining of approximately R7bn,” the BRPs said.
They said implementation of the Asset Transaction would take longer to execute than the Equity Transaction would have, due to the additional structuring, and consents (including government, regulatory, and business counterparty) needed.
“Various media reports and certain shareholder comments suggest a break-up of the group (ie, sale of each asset on a piecemeal basis) would result in value remaining for shareholders. For this to happen, the assets of THL would need to realise well in excess of the remaining claims of R13bn before the escalation of the claims due to the accrual of interest,” the BRPs said.
Also, they said one the conditions attached to the post commencement funding provided by the IDC to THL was the prohibition of any piecemeal transaction in selling THL.
“The BRPs remain of the view that there is a reasonable prospect of a successful business rescue … there is no reason why an Asset Transaction cannot result in a re-capitalisation of the purchasing entity (Vision or its nominee), such that the new THL is faced with a debt level that is a manageable quantum and repositions the new THL to operate successfully post business rescue.”
BUSINESS REPORT