The South African sugar industry has cautiously welcomed the sale of Tongaat Hulett Limited to the Vision Partners consortium this week, which prevented the more than a century old company from going into liquidation.
But the sugar industry is concerned over the commitment of Vision Partners – led by ANC funder Robert Gumede’s Guma group – to paying more than R900 in sugar industry levies which Tongaat Hulett owes.
Last week Tongaat’s creditors meeting voted in favour of a business rescue plan submitted by Vision Partners, which is made up of Guma Agri & Food Security Group, Zimbabwe’s Remogogoo Investments, the Terris Fund and Pakistani sugar giant Almoiz.
They did so after the withdrawal of competing bidder RGS Sugar, who claimed in a letter to business rescue practitioners that the process had been rigged in favour of Vision, and that they feared that their bid would be undermined even if they were to succeed.
Vision purchased around R8 billion in secured debt held by a group of banks ahead of the vote for an undisclosed amount, giving them control of the voting process, in which their bid received unanimous support.
The agreement ends a length and heavily contested process which ended up in the court several occasions and which only went ahead after the withdrawal of a threat to interdict the process by RCL Foods, which owns Selati Sugar, over the unpaid levies.
At the weekend, SA Canegrowers chairperson Andrew Russell said that while they noted the vote by creditors, they remained concerned over the unpaid levies and Vision’s commitment to pay them.
“While the vote marks a critical step forward in the effort to save Tongaat Hulett, SA Canegrowers awaits confirmation by the Vision Group of its commitment to pay the industry levies owed to the South African Sugar Association by Tongaat Hulett,” he said.
“The Vision Group has yet to commit to payment of the outstanding levies before any appeals of the declarator order have been exhausted, leaving open the possibility of further costly and time-consuming litigation,” Russel said.
Both SA Canegrowers and the South African Sugar Association (SASA) had gone to court to force both Vision and RGS to incorporate the payment of the industry levies into their business rescue plans.
This after the High Court ruled that the business rescue process had to accommodate payment of the levies, which were part of the cost of doing business in the industry.
The levies subsidise growers who provide sugar cane to Tongaat for milling and ensure that there is profitability all the way along the sugar value chain through payments to growers via SASA.
The company had defaulted on payment for nearly a year and only started paying again earlier this year after SASA and SA Canegrowers went to court.
Tongaat, South Africa’s leading sugar producer, lost around R12 billion in value and was delisted from the JSE due to an alleged R3.5 billion accounting fraud by former chief executive Peter Staude and a group of managers and accounts.
They allegedly inflated profits of its now defunct property division in order to secure profit shares and productivity bonuses and were found out in 2019.
The business rescue process has hit Tongaat’s suppliers – including an estimated 25 000 small scale sugar farmers who supply it with cane – hard.
Russell said that when Tongaat went into business rescue in October 2022, this had left the industry in a precarious state and had caused “great uncertainty” for growers who relied on its KwaZulu-Natal north coast.
These hardships had been exacerbated by the court action by Metis and Tongaat Hulett.
Russell said the withdrawal of RGS was “a further blow” as the company had undertaken to honour Tongaat’s industry obligations in their business rescue plan.
Despite this, the organisation was “encouraged” by the success of the BRPs in securing a partner to save Tongaat’s mills as tens of thousands of small growers depended on them.
Vision spokesperson Rob Bessinger declined to talk to the Mail & Guardian, saying he would do so at the appropriate time, but said in a statement that the consortium was “particularly elated” and “grateful” at the success of the vote.
“Having been involved in this transaction since late 2020, we always believed that in the right hands, THL can return to be a great business. We have a team that has a sustainable plan to turnaround, grow and diversify the group back into relevance,” he said.
He said Vision would “engage and settle with SASA” in line with the court judgement and would engage with the Industrial Development Corporation (IDC) regarding its post commencement funding “ on win-win terms to be agreed by all parties and in the best interests of the company and the sector.”
Metis said in a statement that the adoption of the rescue plan ‘finally provides some certainty to stakeholders on the way forward.’
They would now proceed with the implementation of the plan, which would have to be “substantially implemented” – or be no longer financially distressed – before the company could exit business rescue.
This would take “several months”, Metis said.
SASA has welcomed the adoption of the rescue plan as averted liquidation and paved the way for the recovery of Tongaat Hullett.
“We are pleased that the business rescue process has produced a positive result. All Industry stakeholders including the government have been fully committed to saving Tongaat Hulett since the commencement of the business rescue process,” SASA chairperson Fay Mukkadam said.
Mukkadam said SASA looked forward to working with the new owners to ensure that the rescue plan was successfully implemented.
Tongaat’s unsecured creditors – many of them small local businesses – are happy to have avoided liquidations, but have come out of the process worst.
They are now getting far less than the 65 cents on the Rand which they would have, should the RGS bid have not been withdrawn and succeeded.
One unsecured creditor, who has been owed just under R10 million since 2021 and who asked not to be named, said they believed the process could have been handled far better.
“We are pleased that liquidation has been avoided and that for now jobs at THS and amongst the cane growing community have been saved,’ the creditor said.
“But we are very disappointed at the outcome for the unsecured creditors – mostly small companies like ours. The BRPs have always described business rescue as a creditor driven process, but in reality we have had absolutely no say in the outcome at all, as overwhelming voting power rests with the lender group,” the creditor said.
“The order of precedence in liquidation and in business rescue seems heavily skewed in favour of the banks – who should surely have more financial expertise than us and should have conducted better “due diligence” before advancing the money,” they said.
They shared the view of RGS that the process had been manipulated to favour the Vision group.
“We can only agree with the comments in the RGS letter to the BRPs reported in the media, that the BRPs appear to have bent over backwards to accommodate the Vision group, when on the face of it the RGS plan seemed better in every respect,” they said.
“Under the RGS plan, we would have received around 65 cents on the rand. As it is, we will only receive a tiny fraction of what we are owed, which is a devastating loss for a small organisation like ours,’ the creditor said.
“The BRPs have commented that a few cents on the rand is better than getting nil under liquidation, but this appears hypocritical considering that according to the order of precedence, their fees get paid before anyone else gets a look in.”
Metis this week denied the claims made by RGS in their letter, saying they were “baseless” and said that they would respond in due course.
Russell said they would “ closely follow developments in the coming weeks as the business rescue process hopefully nears its end point. “
“Our priority remains the successful conclusion of the business rescue process that revives Tongaat Hulett and protects the livelihoods that depend on its operations,” Russell said.
Vision Partners say they will “engage and settle” with the SA Sugar Association
