TONGAAT’S STORMY VOTE

About 20% of the sugar firm’s beleaguered shareholders voted against a R4bn capital raising plan that will bring in controversial new Zimbabwean-based investor Magister

If Tongaat Hulett CEO Gavin Hudson was expecting a quick rubber stamp on his bid to bring in the opaque Zimbabwe-based Magister as part of a plan to raise R4bn in capital, the bristling anger of the sugar giant’s bruised investors would have surprised him.

On Tuesday, Tongaat Hulett asked investors to vote on the plan to raise R4bn through the new issue of shares, which will likely see Magister end up with between 35% and 60% of the sugar giant. It’s more grim news: shareholders, who have watched Tongaat’s stock slide from R135 four years ago to R5.29 now due to an epic fraud that wiped out R12bn in equity, will now see their investment diluted again.

In the end, a majority of shareholders gave it the green light — but not before the combative two-hour meeting had put Tongaat’s board on this spot.

Dave Woollam, an activist who has taken on companies such as retailer Lewis, described it as “tragic and sad” that Tongaat had reached this point. “It’s completely and utterly wrong [to do business with] a company of which we know so little, and yet we’re prepared to take their cheque. That isn’t how we do business in SA — we should have learnt from the recent past,” he said.

Well, we didn’t have much choice but to pursue a rights issue, argued Tongaat chair Louis von Zeuner. He said that after a two-year attempt to fix Tongaat after the reputationbusting fraud, it had reached a “critical point”, and selling assets to cut debt would be “value destructive”. Besides, there wasn’t exactly a throng of other suitors.

Hudson reiterated this. “We were left with a simple choice in terms of raising additional capital: a rights issue. The [alternative] is not one that we entertain, which would mean selling our sugar core assets.”

After the meeting, Hudson told the FM that he thought it had “gone OK”, given the limited options Tongaat has. If all goes well, it will issue new shares at a price yet to be disclosed (but certainly at a discount) and use the cash to pay down its R6bn debt towards, hopefully, R2bn.

Now it’s true that Tongaat may not have had a wealth of options, but is it really the case that these were the only two alternatives? Magister, after all, comes with the sort of baggage you wouldn’t necessarily want if you’re battling to put an immense governance failure behind you.

Magister is run by Hamish Rudland, the brother of Simon Rudland, who co-owns Gold Leaf Tobacco. But not only has Gold Leaf been accused of cheating SA’s fiscus out of tax, Simon’s checkered past involves being arrested in SA for tobacco smuggling. (No surprises for guessing: that particular case went nowhere.)

The Rudlands are also reported to be close to the autocratic thugs in Zimbabwe’s ruling party, Zanu-PF, which doesn’t exactly fill investors with confidence.

The company line, reasonably, is that Hamish Rudland shouldn’t be saddled with the (alleged) sins of his brother.

But that’s a tough sell for two reasons. First, the Tongaat deal circular describes the wider “Magister Group” as including “affiliates”, defined murkily as “family members, from time to time, of Hamish Rudland”.

Second, a Dubai-registered company called Braemar, ostensibly owned by Rudland’s mother Adrienne, has bought 9.9% of Tongaat. Which suggests the family is making a concerted play for the sugar giant.

This week, Hamish Rudland told investigative journalists amaBhungane that Gold Leaf has nothing to do with the Tongaat deal. But he wouldn’t say where Magister had obtained the R2bn initial funding for the deal, saying the arrangements are “proprietary and confidential”.

During the vote, investors kept asking a variation of the question: surely there were other options? As one of them later told the FM, was Tongaat really so hard up that it had to get cosy with the family of an alleged tobacco smuggler? Shouldn’t a company that had barely survived a swindle think twice about the company it keeps?

Warren Chapman, group CEO of SA’s largest prime broker Peresec, tells the FM he feels Tongaat hadn’t properly explored other options. “I felt it was ill-advised and rushed over the festive season. I don’t think there was enough disclosure to investors. Had the communication been better, there may have been other interested parties, which would have given everyone more choice,” he says.

Hudson rejects this. “We’ve been exploring options for two-and-a-half years,” he tells the FM. “This business was on the brink of business rescue, and the interest we were paying on our debt [was] exceeding our cash flow. So we sold our noncore assets in Namibia and Eswatini, and our starch business. And we honestly had no options left.”

Chris Logan, another activist who lobbied passionately for the vote to be postponed, feels differently.

Logan argued that Tongaat is now pursuing its ex-auditor Deloitte for failing to detect the accounting fraud for years, and any money it gets here could mitigate the need for this deal. “Shareholders haven’t been able to make an informed decision at this meeting,” he said.

Tongaat listened politely, then went to the vote anyway. Even though Tongaat scraped together enough support — thanks to PSG Asset Management and the Public Investment Corp — Hudson still has a lot to do to convince investors. About 20% of votes went against Tongaat — except for the proposal to elect Hamish Rudland as a director, which attracted a 26% “no” vote.

Hudson doesn’t see this as a major problem though: “Our stock is very concentrated, so it may have been just one or two shareholders who voted against [the plan].”

Still, his argument — that Tongaat had done an extensive due diligence on Magister, and this deal is its best route back to prosperity — clearly rings hollow for many investors. It’s a mighty gamble that had better pay off.

Was Tongaat really so hard up that it had to get cosy with the family of an alleged tobacco smuggler?