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Troubled Tongaat says secures IDC funding to complete season and prepare for next year

Troubled Tongaat says secures IDC funding to complete season and prepare for next year
Labourers work at Tongaat Hulett production line in Triangle, about 400km south of Harare, Zimbabwe. (Photo: EPA-EFE / Aaron Ufumeli)

Troubled sugar producer Tongaat Hulett, which entered business rescue in October,  has acquired "post commencement finance" from the Industrial Development Corporation of South Africa (IDC). This will enable it to finish out the current season with seed capital to prepare for the next while the business rescue proceedings unfold. 

Tongaat made the announcement on Wednesday in a “business rescue update” on SENS. It remains to be seen if the business can indeed be rescued, but at least it now has a lifeline. 

“The Company is pleased to inform shareholders that it has secured post commencement finance from the IDC,” Tongaat said, without disclosing the amount. 

“Post commencement finance” or PCF “is finance or credit granted to a company in Business Rescue and is regulated by section 135 of the Companies Act,” according to the Business Rescue Exchange. ( URL: https://www.brexchange.co.za/post-commencement-finance-2/).  to make Post Commencement Finance more attractive to investors and financiers.” 

“Post Commencement Finance may be applied towards the payment of the Practitioner’s remuneration, employee costs, working capital or any other avenue that may maximise the probability of successfully rescuing the company.” 

This effectively means that it provides liquidity when the taps have run dry. 

Tongaat said the finance secured should fund its “working capital requirements in order to complete the current season, as well as to carry out necessary off- crop capital expenditure to get operations ready for the next season.”

So it is looking forward to the next sugar crop season and expects to still be operational then. 

“This represents a key milestone in the business rescue process and now enables the business

rescue practitioners to focus on the next phase of the business rescue proceedings,” the company said, without providing further details. 

There has been nothing sweet about the Tongaat saga, which includes allegations of missgvernance and corporate malfeasance. Seven people, including six former Tongaat executives, appeared in the Durban Specialised Commercial Crimes Court early this year on fraud and racketeering charges linked to company land sales. (https://www.dailymaverick.co.za/article/2022-02-10-tongaat-hulett-welcomes-the-appearance-in-court-of-several-former-executives/ ).

The sales agreements were allegedly backdated in a way that had a material impact on Tongaat’s results while producing millions of rand in “performance bonuses.” The matter has since been moved to the Durban High Court. 

With the stench of these cooked books hanging in the air, Tongaat attempted a capital raising exercise with Magister Investments, an obscure Mauritian company with ties to the Zimbabwean Rudland family which faces persistent allegations of being involved in the illicit tobacco trade. Imagine a boardroom where the alleged swindlers were swapped for alleged gangsters, and you kind of get the picture. (https://www.dailymaverick.co.za/article/2022-04-12-who-is-really-behind-the-r2-billion-tongaat-hulett-bid/ ).

Anyway, that deal went pear-shaped, forcing the agri-business into business rescue which hopefully for the sake of its employees and other stakeholders will end with the company in the hands of legitimate investors with legitimate executives at the helm. 

The nonsense in this case seems to be a purely South African affair, with Tongaat’s operations in Botswana, Zimbabwe and Mozambique unaffected by the business rescue process. The company has a wide footprint which includes ethanol, animal feeds, cattle and property. Time will tell if it is still a going concern in South Africa when the sugar season rolls around. DM/BM

 

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