Tongaat Hulett sells sugarcane farm asset for US$21.7m in quest to reduce debt

SOUTH AFRICA – Indebted South African sugar producer Tongaat Hulett has entered into a R375 million (US$21.7m) sale agreement for its Eswatini sugarcane farm with Eswatini’s Public Service Pensions Fund, as part of its strategy to reduce its R13bn (US$753m) debt by R8.1bn (US$469m) by March 2021.

The farm, Tambankulu Estates Proprietary Limited, includes two agricultural estates astride the Black Umbuluzi River in northeastern Eswatini, with 3,767ha of fully irrigated land under sugarcane and was producing 62, 000 tons of sucrose a year, reports IoL.

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Tambankulu is the largest independent sugarcane estate in Eswatini, said Tongaat, with an average annual yield per hectare of 125 tons. It delivers sugarcane to the Simunye and Mhlume mills.

The consolidated net asset value (NAV) of Tambankulu as of March 31 was R171.7m (US$9.9m) and Tambankulu’s profit after tax for the year ended March 31 was R40.9m (US$2.3m).

The NAV excluded an intercompany loan from Tambankulu to THL of R231.8m (US$13.4m), said the group.

Tongaat Hulett said the move was in line with its strategy to reduce the group’s debt to more sustainable levels.

To reduce debt the board had initiated various processes including, implementing greater operational efficiencies in order to improve the group’s cash flow, considering potential non-core and core asset disposals and considering potential equity capital raising initiatives.

Tongaat Hulett said it believed that “although Tambankulu is a quality and well-run business, it is not fully integrated into the larger sugar business of the THL (Tongaat Hulett Limited) group and accordingly has agreed to dispose of this business.”

The sale comes as Tongaat is currently locked in an impasse over the sale of its starch business to KLL Group, a company owned by Barloworld for R5.35billion (US$342.6m).

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The sale hit a set back after Barloworld triggered a material change clause — a rarely invoked clause in mergers and acquisitions that allows buyers to withdraw from deals if the value of the transaction has been undermined by a significant development.

Barloworld felt that the effects of Covid-19 were likely to negatively impact the business and result in material adverse changes.

The industrial group said then that the starch business was likely to face a 17.5% drop in annual core profit, stating that the pandemic, which has had an adverse effect on industries, would lead to a scramble for cash and that economists have projected one of SA’s steepest recessions yet.

Tongaat disagrees that Covid-19 has been sufficient to trigger this clause, and the issue is being referred to a third party to determine whether or not the deal can be actualized.

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