Plan to save sugar industry
Extracting businesses from a company in business rescue likely to be complex. IF MILLS AREN’T OPERATING, IT IS GAME OVER FOR A LOT OF PEOPLE
In a race against time to save the sugar industry from disaster, canegrowers in KwaZulu-Natal have formed a consortium and submitted a proposal to the business rescue practitioners (BRPs) of JSE-listed sugar producer and property company Tongaat Hulett to acquire certain of its South African assets.
If the acquisition is approved, these assets will be held in an unlisted limited liability company (NewCo).
Spokesperson Simon Cleasby said NewCo is awaiting a response from the BRPs “as time is of the essence if the mills are going to be operational when the milling season commences in April 2023”.
Cleasby said the offer was made on behalf of growers delivering more than five million tons of sugar cane to the Tongaat mills on the North Coast to ensure the survival of these farming operations, the thousands of livelihoods they support, and socio-economic stability for the greater region.
Context
An industry insider stressed how important it is to ensure mills continue operating because of their fundamental importance for the conversion of cane to sugar.
Without operating mills, the growers are looking at a “R4 billion hole” from not being able to do anything with their cane.
“If the mills aren’t operating, this is game over for a lot of people. If people think this business [Tongaat] can be euthanised, then they have got R20 billion or R30 billion coming at them and it could be worse over time because the first line will be about R9 billion of debt from the farmers, another about R5 billion of debt from key industries like transport, with the hauliers totally dependent on transporting cane, plus all the suppliers and people up and downstream.
“It will have a ricochet effect into the economy, which you will count in tens of billions of rand,” he said.
The industry insider said the major problem is that nobody is prepared to put up the R300 million to R400 million required for the maintenance and refurbishment of the mills.
No numbers yet
The assets include the operating mills at Maidstone, Amatikulu and Felixton, the mothballed factory at Darnall, Huletts Refinery, Voermol animal feeds, and associated brands and trademarks.
Cleasby said NewCo is not currently in a position to discuss the value of the proposed deal, adding this will in large part be determined by negotiations with the BRPs, which have yet to begin.
He was coy on how Newco will pay for the assets if the proposal is successful.
“The consortium has a number of mechanisms available to it. What is ultimately decided will depend on the quantum required based on the outcome of the negotiations.
“This is why negotiations must get underway soon to enable the consortium to definitely conclude these critical arrangements.”
Cleasby said the consortium has received overwhelming support from growers, the broader industry and stakeholders.
But he said this support will only be concretised when the terms of a deal are agreed with the BRPs at Tongaat so the ultimate partners to the consortium can be confirmed.
Consortium
Cleasby said the offer to join the consortium will be extended to the more than 11 000 small-scale growers and 400 commercial and land reform growers that supply the Tongaat mills, as well as a number of strategic partners.
“How many of these parties choose to participate and what their shareholding will be will depend in part on the deal reached with the business rescue practitioners at Tongaat Hulett.
“This is why we would like to see negotiations get underway as soon as possible,” he said.
Cleasby said the consortium’s vision is to create a collective investment in the assets of NewCo by all Tongaat-supplying growers.
“We envision a 51% black shareholding, with the majority of this comprising black growers.
“This will ensure NewCo meets the industry’s transformation objectives. Realising this vision will depend in part on securing the necessary development funding for the empowerment shareholding,” he said.
Cleasby said NewCo represents one of the few viable opportunities to save more than 11 000 small-scale growers, more than 20 000 jobs in the cane growing sector alone, and a significantly greater number of indirect job losses in the region.
“It is also an opportunity for commercial growers and smallscale growers to align and optimise synergies for mutual viability and sustainability over the longer term,” he said.
Proposal ‘should be considered’
Shareholder activist Chris Logan said in principle, the concept of the farmers taking control of these assets of the whole value chain has a lot of merit and is an option that should be considered.
“If the farmers have a monetary or shareholding interest in the mill, then they obviously have an interest in making it run properly,” he said.
“Obviously these assets have not been running properly.”
However, Logan stressed the importance of the consortium being as inclusive as possible to ensure it does not limit its capital, cane supply and knowledge base.
He said a possible alternative is that Tongaat retain a stake in these assets, adding that there was similar initiative several years ago, called MillCo, but nothing came of it.
The industry insider said the growers cannot be blamed for making the proposal but it will not be easy for NewCo to secure the money to execute its proposal.