R500m headache for Tongaat buyer Vision
Levies pose further problems for Vision
Following its successful acquisition of troubled sugar producer Tongaat Hulett after a lengthy and messy business rescue process, the Vision consortium — led by businessman Robert Gumede and Zimbabwean Rute Moyo — is set for another battle over outstanding sugar industry levies of more than R500m.
Vision secured the majority votes to assume R8bn of Tongaat debt owed to bankers and other financiers, known collectively as the lending group, and partially settled through a debt-for-equity swap.
The deal ends a protracted and controversial business rescue of the ailing sugar company that is critical to thousands of small-scale farmers and other entities in KwaZulu-Natal.
Vision emerged as the sole contender for the business after Mozambican group RGS dramatically withdrew its interest on Tuesday, claiming the business rescue practitioners (BRPs) were biased towards Vision — an allegation they have denied.
However, cane growers, an industry body and a Tongaat competitor are still aggrieved over the outstanding levies. The business rescue process was mired in controversies including court cases and threats of further court action over the levies.
The South African Sugar Association (Sasa) and RCL Foods, maker of Selati sugar, filed a court interdict in December to stop voting on the business rescue plans because Vision and RGS hadn’t catered for the levies, as per an order of the Durban high court in November.
The rescue plans were later tweaked to make provision for the levies, which amount to about R525m.
Vision has made provision for the levies, but payment is subject to the outcome of an appeal to the Durban High Court ruling instituted by both the business rescue practitioners and Tongaat Hulett.
RCL Foods said on Friday that when Tongaat suspended its payment of industry redistribution and levy payments to Sasa for the 2022/23 season, the cost had been
borne by the other industry participants.
“This was not only unlawful but also patently unfair.” It said 64% of Tongaat’s unpaid statutory obligations had been carried by the growers, meaning that 64% of the outstanding payments were due to be redistributed to farmers, more than 20,000 of whom are small-scale growers.
“These funds have already been outstanding for nearly a year, during which [time] the industry has effectively funded the business rescue process,” RCL said. “We regret that the approved business rescue plan requires growers and millers to continue to bear the costs of unpaid statutory industry obligations, in conflict with the recent ruling of [Durban high court] judge [Rashid] Vahed.”
RCL said it remained hopeful that Vision, the BRPs and Tongaat “will reconsider their decision regarding their statutory obligations towards Sasa because it is morally unjustifiable to continue to burden the industry with the cost of Tongaat’s business rescue”.
It added: “We will continue our involvement to oppose the appeal of judge Vahed’s ruling, as filed by Tongaat and the BRPs, to ensure that we protect the rights of our growers and ourselves.”
SA Canegrowers chair Andrew Russell said the organisation was awaiting confirmation from Vision on its commitment to pay the industry levies.
“The Vision group has yet to commit to payment of the outstanding levies before any appeals of the declaratory order have been exhausted, leaving open the possibility of further costly and time-consuming litigation,” he said.
Responding on behalf of Vision, spokesperson Rob Bessinger said: “What is in our [business rescue] plan was extensively negotiated and agreed with Sasa, and the current legal situation was factored in during those negotiations. It’s important to note that we are not in control of the company until it is out of business rescue.”
Vision seems to be attracting international investors that are interested in financing the consortium as it starts taking over the sugar business, according to sources close to the group.
Vision still needs billions of rands to turn around the business, which has thriving operations in Mozambique, Zimbabwe and Botswana. The group eventually plans to diversify into ethanol and power generation and expand Tongaat Hulett operations into East and West Africa.
A source close to Vision said the business had huge potential, especially because of its presence in Southern Africa which can be leveraged for growth elsewhere on the continent.
“They see the growth potential of the group,” the source said.
Tongaat’s production facilities across Southern Africa have the capacity to crush 12.7Mt of sugar cane
— 5.8Mt provided by third-party growers — to produce 1.5Mt of raw sugar, 750,000t of refined sugar, 400,000t of animal feed and 40-million litres of ethanol.
Vision said in its plan for Tongaat it intended to give growers confidence that their cane would be processed timeously to address cane security concerns, and to deploy expertise to support further cane supply.
“The ultimate aim is to help Tongaat’s South African operations to reach 6-million-plus [tons] in annual crush. An estimated R4bn in capital expenditure over this period is intended to transition milling operations from medium-pressure at present to high-pressure steam, providing the platform to diversify into downstream activities such as exporting power, green steel and ethanol in which the Vision parties have significant expertise,” it said in the plan.
One of Vision’s investors is Almoiz Group, one of the largest agribusiness groups in Pakistan, with substantial interests in sugar, energy, steel, animal feed, textiles, food and beverages. Bessinger said Almoiz, which was brought into the consortium as a strategic technical partner, had extensive operational, sugar, ethanol and biomass energy experience.
Locally, the Public Investment Corporation (PIC) was expected to provide about R2bn in funding to Vision when it secured an agreement with the creditors, but that didn’t materialise and Vision had to seek funds elsewhere.
The PIC didn’t respond to questions from Business Times. Africa’s largest asset manager said in a statement last week it would work with the winning bidder to save Tongaat.
Another source in Vision said they had “succeeded without [the PIC] so discussions of possible funding will be different now because Vision has other partners who are interested in joining”.
The Industrial Development Corporation (IDC), which has provided funding of about R2.3bn for dayto-day operations at Tongaat after it was placed in business rescue in October 2022, said the onus was now on the BRPs and the successful bidders to discuss the possible ongoing availability of post-commencement funding within acceptable risk parameters, subject to the IDC’s governance processes.
“The IDC remains committed to this process,” spokesperson Tshepo Ramodibe said on Friday.
Tongaat found itself in financial distress after its funders pulled the plug when it emerged that top former executives had been manipulating its accounts for years.
The sugar producer employs thousands of people and was working with more than 250,000 smallscale cane growers as well as numerous players across the sugar value chain when it went into business rescue. In South Africa, about 25,000 people, mostly from KwaZulu-Natal, rely on the company for their livelihoods.
A number of meetings will be held in the weeks ahead as Vision and the BRPs finalise the implementation of the plan, which may take between three and six months to complete.