SOUTH AFRICA – Tongaat Hulett is offloading its 100-year-old starch business to the subsidiary of logistics company Barloworld for R5.35billion (US$342.6m) in an effort to reduce its debt and cover on-going operations.

This comes as the group resumed trading its shares in the JSE in February with the restatement of the group’s September 2018 results.

According to ioL, Tongaat has issued a notice to shareholders indicating that the starch business would be sold to KLL Group, a wholly owned subsidiary of Barloworld.

Its starch business, established in 1919, is one of the largest wet millers in sub-Saharan Africa and operates four plants located at Germiston, Kliprivier and Meyerton in Johannesburg, and Bellville, producing modified and unmodified starch, as well as a powdered glucose and agri-products.

The mills have a capacity to process more than 850000 tons of maize a year.

“Tongaat has undertaken to its funders to reduce its debt levels by R8.1bn (US$543.2m) by March 2021 in line with the debt reduction plan. Management and the board have initiated various processes, including implementing greater operational efficiencies to improve the group’s cash flow considering potential non-core and core asset disposals and considering potential equity capital raising initiatives,” it said in a stock exchange announcement.

In terms of the agreement, all jobs in the starch business will be retained, with the transfer of employee’s conditions of service to remain intact, the group said.

Group chief executive Gavin Hudson said Tongaat had already met and exceeded the first debt repayment milestone agreed with its lenders.

He said the group is considering a number of options for reducing its debt, apart from selling non-core and core assets. The other options include accelerating operational efficiencies, and a potential strategic equity capital raising initiative.

“The sale of the starch business will allow us to make excellent progress on paying down our debt, and that in turn will give us breathing room and free us up to put measures in place to grow the business. The sale positions us for longer-term sustainability and value creation for our shareholders,” Hudson said.

According to the group’s interim results for the six months ended September 2019, the division’s operating profit was R306 million (US$20.5m, marginally up from the restated amount of R305m (US$20.4m) compared to a year earlier.

The business grew its sales volumes by 4.5percent to 254,000 tons, up from 243,000 tons compared to 2018.