Tongaat yet to fill debt hole as it cancels deal with Magister, rejects offer for Mozambican assets

SOUTH AFRICA – Embattled sugar producer Tongaat Hulett has called off its recapitalization deal with Mauritius-based Magister Investments.

In 2021, Magister committed to underwriting R2 billion (US$126m) of Tongaat’s R5 billion (US$316m) rights offer. The deal was meant to be finalised by the end of June, once certain conditions were fulfilled.

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However, progress has been slowed by regulatory processes including a hearing required by certain shareholders before the Takeover Special Committee and longer than expected timelines in obtaining the approval of the Zimbabwean Competition and Tariff Commission.

In a statement, Tongaat said it was clear that the conditions would not be met by the end of June forcing both parties to call the deal off.

“Little purpose will be served in waiting until 30 June 2022 for the Underwriting Agreement to expire by effluxion of time. Tongaat Hulett and Magister have accordingly agreed to terminate the underwriting agreement with effect from today, 24 June 2022,” Tongaat stated.

At the heart of Magister’s hearing, was a ruling by the Takeover Regulation Panel earlier this month that meant the deal couldn’t go forward due to its finding that Magister and some third parties had acted in concert when purchasing shares ahead of a shareholder vote.

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The news of the deal being cancelled is likely to be welcomed by minority shareholders at Tongaat, who were opposed to it, saying that Zimbabwe’s Rudland family, which has ties to Magister, would be able to take over the company on the cheap.

Tongaat remains committed to recapitalization

Even though the deal has been called off, Tongaat Hulett has highlighted it remains committed to a recapitalisation.

“The company is continuing to proactively engage with stakeholders regarding a capital raise transaction and a sustainable solution for the group.

“There is a positive commitment from various stakeholders who recognise the critical social impact Tongaat Hulett has in South Africa and across the SADC region,” said Tongaat in a statement.

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To this end, the giant sugar processor has established a Restructuring Committee and appointed a Chief Restructuring Officer, an additional sub-committee of the board of directors of the company.

The primary responsibility of the Chief Restructuring Officer and the restructuring committee will be to further focus on developing solutions to reduce and repay debt to sustainable levels whilst improving the liquidity of the company.

Piers Marsden has been appointed by the board as the Chief Restructuring Officer and a non-executive director of Tongaat Hulett.

Piers is a specialist in improving corporate performance, executing corporate turnarounds, and restructuring corporate debt.

He has previously acted on behalf of Cell C, Ascendis Health, Edcon, Highveld Steel & Vanadium and Optimum Coal amongst others.

His focus areas have been in restructuring debt, recapitalising the companies, and implementing restructuring plans to deliver long-term sustainable growth and future value to all stakeholders.

This appointment will also provide Tongaat Hulett’s executives with additional capacity to focus on strategic progress, operational issues, and the day-to-day demands of managing the Group to deliver future value to all stakeholders.

Tongaat holds onto its assets

Tongaat remains firmly of the view that a capital raise is a better alternative to strategic asset disposals, particularly an accelerated disposal programme which is unlikely to realise full value for the assets.

Recently reports emerged that a US-based Lusitania Investment Capital was in “negotiations” with the company about a US$220 million the group had offered for Tongaat’s assets in Mozambique including the agricultural and industrial facilities in Xinavane and Mafambisse.

In response to this according to IOL, Tongaat highlighted that no businesses had been sold in that country and it remained “firmly business as usual for all the company’s operations in that country”.

It said that while it was not able to provide any details of any party that approached the group, “we can confirm that a party did approach us in this regard with an initial and exploratory non-binding expression of interest”.

“Due to the rights offer process, and that this party’s interest was to acquire assets, we could not pursue any further talks,” Tongaat said.

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