Tongaat deal deadline extended
An outstanding court judgment has just come to the business rescue practitioner’s attention
Politically connected billionaire Robert Gumede’s bid to buy embattled sugar giant Tongaat Hulett Limited appears to still be on track, despite another postponement of its final creditors’ meeting and the rescue plan for the 150-year-old company.
On Tuesday, business rescue practitioner Metis confirmed that the deal with Terris was still on, dispelling persistent rumours that the Public Investment Corporation (PIC) had backed out of the transaction with Gumede’s consortium because of concerns over the risk associated with using civil servants’ pension funds to purchase debt.
Terris Consortium — Gumede’s Guma group; Remogoggo, a Mauritian-registered and Zimbabwean-owned entity; and Almoiz Limited, a Pakistani-owned sugar company — have bid to purchase Tongaat’s R8 billion secured debt held by 12 banks at a discount with R2 billion.
They are in negotiations with the PIC for funding for the deal, on which 40 000 jobs in South Africa, Zimbabwe and Mozambique and the livelihood of 21 000 sugar farmers depend.
In doing so, they outmanoeuvred the earlier preferred bidder for Tongaat, Kagera Sugar, and a third competitor, RGS Sugar, and are in line to take control of the creditors’ meeting — and determine its decisions on the business rescue plan.
Tongaat went into business rescue because of the crisis caused by the R3.45 billion fraud allegedly perpetrated by its former top leadership — including disgraced chief executive officer Peter Staude — which was uncovered in 2018. The fraud ultimately cost Tongaat R12 billion in lost value.
Staude and other former executives are charged with fraud for inflating land sales figures and disguising liabilities for several years in an attempt to increase their bonuses and share options.
They are out on bail of R50 000 each and appear in court again in February.
In a statement, business rescue practitioner Metis said it had received communication from the secured lender group that they had “entered into an updated transaction” with the Terris consortium to purchase their claims over Tongaat.
Metis said the updated transaction “remains subject to payment of the purchase prices for the lender claims”.
The business rescue practitioner said it had requested an extension of the rescue plan publication date “by a few days” from 24 November until 29 November, and for the vote on it to take place by no later than 8 December”.
Metis said it also needed the extension to allow for the outcome of court proceedings between Tongaat the the South African Sugar Association, which had gone to court over R700 million in unpaid levies.
The case has been argued and judgment reserved last year, but Metis said it had “only recently come to the attention of the BRP [business rescue practitioner]” and meant that further updating of the current draft rescue plan was needed.
“The outcome of the court proceedings relating to THL’S [Tongaat Hulett Limited] payment obligations to the South African Sugar Association is awaited,” Metis said.
“As a result of the latest developments,
it is necessary and expedient to extend the publication date for a very short period and to adjourn the meeting to a slightly later date to allow creditors sufficient time to consider the contents of the amended plan.”
Two sources close to the court process said Tongaat began paying its levies and clearing its arrears in the middle of this year, by which time the company had already entered the voluntary business rescue process.
How this was only discovered by Metis and the other participants in the deal a year after the rescue process began remains unclear.
On Monday, Metis told creditors that it needed to “incorporate sufficient details of the transaction(s) that need to be considered by creditors into the amended plan”.
This is not the first delay in the rescue plan being adopted — or in finding a buyer — for the country’s oldest sugar company. The rescue process has seen several preferred bidders named and then dropped by the business rescue practitioner since the beginning of the year.
In April, Magister Investments bid R2 billion for Tongaat’s Zimbabwe operations — the sale of which is constrained by sanctions — but the deal, which would have left Tongaat’s South Africa and Mozambican assets intact, fell through.
It then emerged that one of the conditions imposed by the PIC was that Tongaat’s assets be dispensed with as a single unit, and not on a country-by-country basis.
In June, Metis named Kagera as the preferred bidder to purchase Tongaat’s assets for R3.46 billion in a deal which is understood to have been at least partly funded by the Industrial Development Corporation.
But Kagera was dropped by Metis after objections by Terris, which then approached the banks to purchase the R8 billion debt they hold directly and at a hugely discounted price of R2 billion.
This will give Terris control of the outcome of the voting on the revised rescue plan, which is also understood to have been amended to allow for better conditions for unsecured creditors, including sugar farmers and suppliers who it owes.
Terris is understood to have failed to meet the 14 November deadline initially set by the banks for payment to secure the deal, which was then extended, along with the rescue plan deadlines, despite continued interest — and competitive offers — from both RGS and Kagera.
Due diligence procedures required by the PIC had still not been concluded by the 14 November deadline and will have to be completed ahead of the new deadline set this week.
The collapse of Tongaat has already cost about 5 000 employees on its sugar estates in Kwazulunatal and Mpumalanga their jobs in a wave of section 189 retrenchments that took place in late 2019.
Farms were also sold off, while others were leased to black small-scale growers, who now supply Tongaat with raw cane for milling.
Their survival — and that of larger growers — is linked to that of Tongaat Hulett and the outcome of the behind-the-scenes negotiations taking place over the next two weeks.
Terris spokesperson Rob Bessinger declined to comment this week, saying that he would do so “at the appropriate point in time”.
PIC spokesperson Adrian Lackay declined to comment.
“The Public Investment Corporation is a shareholder of Tongaat Hulett. The business rescue practitioner or the counterparties referred to in your inquiry would be best placed to respond to your questions,” he said. “The PIC is not in charge of the business rescue process or the selection of preferred.”
South African Sugar Association (Sasa) spokesperson Cedric Mboyisa was unable to comment on the matter. “The South African Sugar Association, a regulatory body for the sugar industry, is not in a position to proffer specific information or numbers regarding the matter at hand as it is being currently dealt with internally between the business rescue practitioner, Sasa and all other relevant stakeholders.”
‘The outcome of the court proceedings relating to THL’S payment obligations to the South African Sugar Association is awaited’