Sell, even for 1c – analyst
BIG BLOW: TONGAAT SHAREHOLDERS ADVISED TO GET RID OF THEIR INTEREST
Analyst says it’s wiser to cut their losses and get a capital loss tax deduction from Sars.
Tongaat Hulett’s thousands of shareholders should sell their shares in the financially-distressed suspended JSE-listed sugar producer and property developer – even for 1 cent per share – to limit their losses, says an analyst.
This follows the approval this month at a meeting of affected persons of the Vision Group’s business rescue plan, which will lead to a significant dilution in value for shareholders.
The Vision plan includes:
The acquisition of the lender group claims and security amounting to about R8 billion and subsequent conversion of about R4.1 billion of these claims into new equity in Tongaat; and
Shareholders retaining an interest of 2.7% in Tongaat equity after the debt-to-equity conversion.
An analyst who did not want to be named said Tongaat’s shareholders are “being wiped out” by the Vision plan.
He said the lender group takes an about 50% “hit” on their debt and Vision indicated that shareholders get 2.7%.
However, the analyst said that is purely a mathematical outcome of Vision issuing the five billion maximum number of authorised shares that exist and existing shareholders retaining the 135 million shares that are in the offer, which is exactly 2.7%.
“Vision believes it can just bluntforce their way into issuing all the shares for a swap of debt without any shareholder approval or special resolution, and indicated that the remaining R3.6 billion in debt will remain on the balance sheet,” he said.
“Vision’s notion of shareholder value retention is bull*** because there isn’t going to be anything left for shareholders.”
Tongaat’s business rescue practitioners (BRPs), Metis Strategic Advisors, confirmed on 12 January that: “The preliminary approval has become final due to the rights of shareholders not being affected and therefore no shareholder vote being required.”
The analyst added that trading creditors get five cents in the rand and “shareholders get absolutely nothing”.
“The 2.7% is an illusion, it’s zero. The reason simply is that they still keep R9 billion of debt on the balance sheet and many moons will be required to pay that up.”
The analyst said shareholders would be wise to sell their shares for one cent per share.
“At least then they get a tax deduction because of a capital loss, which is at least an 18% return through an offset from their capital gains from Sars [South African Revenue Service],” he said.
Shareholder activist Chris Logan said Tongaat shareholders will still have an interest in the group but it will be “worth next to nothing”.
However, Logan said until Vision and the BRPs report on the ratios and provide more information going forward, it was not possible to work it out what the shares are worth.
“It’s all guesstimates. Even if they told you how much debt they were going to convert into equity and how many shares they have versus the existing shareholder base, it would still be very difficult because you’d still then have to work out what the business is worth going ahead,” he said.
‘Rudland resolution’ remains in place
Charles Liasides, a director of Artemis Investments, which as at 3 November, 2023 owned 20.1 million shares in Tongaat Hulett or 14.878% of the group’s issued shares, said shareholders will be “horribly” diluted by the Vision plan.
Liasides said that when trading in Tongaat shares on the JSE was suspended, the 135 million listed shares were trading at about R4 per share, which translates into about R500 million, but Vision wants to convert about R4.1 billion in debt into shares.