UGANDA – Investors in Tongaat Hulett are grappling with a harsh reality as the business rescue practitioners confirm that there’s little hope of them receiving any returns on their shares.

Despite the forthcoming publication of the company’s business rescue plan, it’s been made clear that prior claims, including those of business rescue practitioners, staff, and banks, will be prioritized.

Unsecured creditors, which encompass all creditors with concurrent claims against the company, are collectively owed just under US$89.83 million.

The most optimistic scenario suggested that they may receive a minimal payout, estimated at around 5 cents to the rand.

The disheartening outlook follows a previous rescue plan in May, which stated that unsecured creditors were unlikely to recover anything if Tongaat Hulett were to go into liquidation.

Among these unsecured creditors, the South African Sugar Association stands out, being owed approximately US$14.41 million (R757 million) in debt. Additional unsecured creditors included the South African Revenue Service, the Department of Water, and various retailers.

Secured creditors, who hold 74% of the vote, are owed a total of about US$139.42 million (R7.314 billion). Notably, Standard Bank has the largest exposure at approximately US$36.75 million (R1.93 billion), followed by Nedbank US$28.57 million,  (R1.5 billion), RMB/FNB US$22.87 million (R1.2 billion), and ABSA US$21.76 million (R1.14 billion), collectively controlling 58% of the vote.

The Industrial Development Corporation is also owed around US$11.66 million (R613 million), which it generously provided to support the group during the milling season, off-crop maintenance, and capital expenditure.

During a virtual shareholder engagement session, Metis Strategic Advisors repeatedly emphasized to shareholders that they should not anticipate any value for their investments.

This grim outlook was attributed to various factors, including the substantial balance sheet deficit, the composition of assets, the magnitude of creditors, the necessity for substantial new post-commencement finance, and the rights of secured creditors.

The amended business rescue plan is expected to be unveiled before October 31, 2023. Ultimately, the plan’s fate rests in the hands of the creditors, who will cast their votes.

Tongaat Hulett entered voluntary business rescue in October 2022 to avoid bankruptcy following a massive fraud scandal in 2018.

As dictated by company and insolvency law, investors find themselves at the bottom of the hierarchy in business rescue, with business rescue practitioners, employees, and creditors taking precedence.

Acknowledging the company’s financial distress, the business rescue practitioners noted that the market is treating it accordingly, with a slew of speculative and underfunded proposals being received, underscoring the challenging environment faced by the sugar producer.

In July, the business rescue practitioners revealed a preferred bidder for Tongaat Hulett: Kagera Sugar Limited, owned by the Super Group in Tanzania and backed by Norfund.