Banks defend Tongaat decision

Hope that business rescue talks will result in viable solution

● As the financial troubles at Tongaat Hulett hit the sugar industry hard, the company’s lenders have defended their decision to pull funding from the sugar producer, with some saying its restructuring plan was not viable.

But they are working with business rescue practitioners (BRPs) to provide funding for the rescue process.

Tongaat, which directly employs 2,500 people and during the peak of the sugar season provides more than 185,000 employment opportunities, went into business rescue last week after lenders declined to extend further funding.

The group of lenders, which had provided funding for Tongaat since 2019, include Absa, Standard Bank, Rand Merchant Bank (RMB), Investec, Nedbank, the Land Bank and Sanlam.

Asked to comment on the decision to withdraw funding for Tongaat’s restructuring plan and the systemic risk to KwaZuluNatal if Tongaat fails, RMB said it “did receive and review the restructuring plan, but had to conclude that it did not constitute a viable solution to the company’s financial situation and could therefore not be supported”.

It was “very cognisant” of Tongaat’s importance to communities in KwaZulu-Natal and seriously took into account the societal impact of the business rescue but decided “the original remediation proposals put to the lenders did not present viable or sustainable outcomes”.

It added: “It is important to note that funding has not been ‘pulled’. RMB is discussing post-commencement financing requirements with the business rescue practitioners to be applied within the business rescue process.

“Tongaat Hulett is not in liquidation, and the business rescue process is specifically designed for companies in financial distress, with the main objective being to bring them back to operation and possibly avoid the ‘systemic risk’.

“We are eager to consider any viable [business rescue] plan, but will only be able to comment on the plan once finalised and published.”

In a statement this week, Andrew Russell, chair of the SA Canegrowers Association, said the decision by Tongaat Hulett’s board to enter into voluntary business rescue has put the sugar industry in “a perilous position”.

On Tuesday, Tongaat and the BRPs missed the deadline to pay growers for sugar cane delivered in September, putting at risk “the livelihoods of thousands of growers and workers delivering cane to the Felixton, Amatikulu and Maidstone mills in KwaZulu-Natal”, Russell said.

“This includes around 4,300 growers who delivered almost 600,000t of sugar cane to Tongaat mills in September and were due to be paid more than R400m by the end of October.”

More than 4,000 of these were smallscale growers who were especially vulnerable, but larger producers were also affected as they provided most of the tonnage for Tongaat mills, he added.

The nonpayment also placed at risk the livelihoods of an estimated 14,642 permanent and seasonal farm workers employed by growers, he said.

Russell added that it was uncertain whether an estimated R345m due for payment at the end of November to cover October sugar cane deliveries would be paid.

Absa said it was “firmly aware of the role and significance of Tongaat within the industry and in the country.

“We have carefully considered broader national interest along with business interest in the decisions we have made in providing Tongaat with financial assistance over the past few years.”

It said it was working with the BRPs on funding the rescue process.

Standard Bank spokesperson Xolisa Vapi said: “We appreciate the financial difficulties of Tongaat Hulett, and have been supportive by providing the board with time and resources to find a solution.

“We are acutely aware of the plight of cane farmers, and this has been considered in the post-commencement financing that we have approved subsequent to the announcement of business rescue.”

An Investec spokesperson said: “As one of a number of lenders to Tongaat Hulett, Investec has supported efforts to restructure and rehabilitate the business for the past three years.

However, these initiatives have not yielded feasible nor sustainable outcomes. At present, Investec believes business rescue is the most prudent process for all stakeholders.”

Investec said it had provided financing support to Tongaat Hulett in the business rescue process.

Sanlam, as an investor in Tongaat Hulett, said: “Our hope has always been that such an important employer in South Africa will return to profitability, allowing it to protect jobs and continue to be an important economic contributor in KwaZulu-Natal.

“We will continue to engage actively; however, the business does face significant issues, the outcomes of which are currently very uncertain.”

Nedbank said alongside other funders, it remained supportive while the Tongaat board, management and advisers attempted to raise new equity and additional liquidity, sell assets and restructure the company to be able to manage through the difficult market conditions and eventually return to profitability.

“We are disappointed that this could not be achieved,” it said.

It added that it is committed to working with the business rescue practitioners throughout the process of developing a plan for the company.

It added that Tongaat Hulett is important to the economy of KwaZulu-Natal which has already been negatively impacted by the July 2021 riots and the April floods.

Tongaat said last week in a statement announcing its business rescue that its lenders had worked constructively with management since 2019.

To assist with the R1.5bn liquidity shortfall, the lenders advanced a new borrowing base facility of R600m on July 29 2022, which was due for repayment on October 25 2022.

But unfortunately the lenders declined to further extend the repayment date for the borrowing base facility, Tongaat-Hulett said,

A spokesperson for the BRPs said on Friday: “These are very complex circumstances and the BRPs are focusing on stabilising the situation, gathering important information, meeting with stakeholders, dealing with critical issues, and completing the statutory duties required in terms of the Companies Act.

“The BRPs are working very hard to find the best way forward for those associated with Tongaat. Tongaat’s leadership team is equally committed to working closely with the BRPs.”

The spokesperson added that the practitioners met with employees on Thursday, as required in terms of the Companies Act.

And that in line with the Labour Relations Act, employees’ rights remain protected during the business rescue process.

The practitioners are scheduled to meet with creditors on Tuesday.

“The BRPs are focusing on stabilising operations while seeking the requisite postcommencement funding,” the spokesperson said.