SOUTH AFRICA – Indebted South African sugar producer Tongaat Hulett, has proposed a major recapitalisation via a rights offer of new shares, partially underwritten by Magister Investments Limited, a shareholder and strategic partner.
Magister is an investment holding company incorporated in the Republic of Mauritius and focuses on long-term investments in agriculture, logistics and other sectors across Southern Africa. The company has also invested in Agriterra Limited, an AIM listed company in London.
Under the agreement, Magister will partially underwrite the rights offer up to a maximum of R2 billion (US$128m), provided that its total shareholding in Tongaat does not exceed 60% immediately following implementation of the rights offer and the underwrite.
The proceeds from the rights offer will be used to sustainably reposition the Group and help secure the future of its approximately 29 000 employees in operations across South Africa, Zimbabwe, Mozambique, and Botswana.
For the past two years, the embattled sugar producer has been working to regain its footing after the revelation that the company inflated its financials by almost R13 billion (US$834m)over a period of seven years.
Since then, the company has embarked on a turnaround strategy, disposing of non-core assets including its start business, Namibian sugar packaging and distribution business, and Eswatini sugar farm to cut down on the debt and undertake cashflow management alongside cost reductions.
During this time, Tongaat has achieved a 42% reduction in debt levels and a successful rights offer will further reduce debt significantly, allowing management to focus on repositioning the business for long-term growth.
“A large-rights offer, incorporating Magister’s underwriting commitment, is a key step in securing the future of Tongaat Hulett. We look forward to it contributing to a market value of the Company which is more reflective of the underlying value of the Group’s various components.
“We believe keeping the Group intact provides the most compelling value proposition for all our stakeholders across Southern Africa,” Tongaat Hulett CEO Gavin Hudson said.
The amount of equity capital to be raised and the pricing of the rights offer is yet to be determined, but is expected to allow the Company to reduce debt to sustainable levels.
The timing to complete the proposed equity raise is dependent upon when the required shareholder, lender and regulatory approvals are obtained, but is expected to be Q1 calendar year 2022.
Magister has vast experience in sectors which complement Tongaat’s strategic focus areas and is expected to add value to Tongaat through such experience.
The introduction of Magister adds impetus to Tongaat’s turnaround strategy and advances the objective of creating value for shareholders and Tongaat’s other diverse stakeholders across Southern Africa.
Through the proposed re-capitalisation, the Group retains exposure to strong, well-invested sugar businesses in Zimbabwe, Botswana and Mozambique, and continued gains under the Sugar Master Plan for its recovering South Africa business.
The company has revealed it will further explore the potential for property disposals to further reduce debt, and to provide additional cash flow in the longer term, and the potential for co-investment with developers to create sustainable revenue sources.