Tongaat Hulett’s business rescue practitioners (BRPs) have finally come up with a plan, for its property division – but it’s slim pickings, as only a fraction of creditor claims will be settled. Although this plan concerns the property business, indirectly it’s also not going to help cane growers who are struggling as part of Tongaat’s broader woes.

On Friday 19 May the BRPs, Metis Strategic Advisors, issued a statement advising that the business rescue plan for Tongaat Hulett Developments (THD) had been released. 

THD is the property development arm of Tongaat Hulett, which has traditionally purchased agricultural land from the holding company, converted it into industrial, retail, office, residential or mixed-use opportunities, and then marketed the property to third parties for development purposes. 

The BRPs’ long-awaited rescue plans for the holding company, Tongaat Hulett Limited, and subsidiaries Voermol Feeds and Tongaat Hulett Sugar SA – for which they were granted an extension – remained scheduled for release at the end of this month. 

We realise this is a very difficult situation.

In March this year, Tongaat was thrown a lifeline of financial support until June 2023, enabling it to pay staff and growers. Most creditors had also agreed to give it time until 31 May 2023, or until a more detailed business rescue plan was developed. At the time, the producer said final binding equity offers to buy, or support its business, would need to be submitted by this Friday, 26 May 2023. 

The THD rescue process is aimed at providing opportunities for land development through third-party purchasers, offer opportunities for affected contractors to continue with their projects, retain jobs, avoid adverse impacts on the KwaZulu-Natal property sector, address key environmental risks and mitigate the potential risk of unfulfilled infrastructure obligations. It is also aimed at enabling a higher distribution to secured creditors than in liquidation. 

THD owes secured creditors more than R7.2-billion. The division has further direct liabilities of about R400-million and post-commencement finance advanced to date of about R100-million.

Due to THD’s liabilities, the net free estimated cash that can be released from the THD rescue will only be about 7% of the R7.7-billion claims, the BRPs explained, adding that given the secured nature of the bank guarantees, this means that there is no likelihood of THD paying distributions to unsecured creditors. 

“Our objective is to secure an outcome which balances the interests of all stakeholders despite the difficult set of circumstances presented in the case of THD. The business rescue plan aims to mitigate a host of risks, including protecting the KwaZulu-Natal property development landscape, addressing infrastructure challenges, mitigating key environmental risks and providing enhanced returns to secured creditors and improved outcomes (compared to liquidation) for other stakeholders.”

They said THD’s liabilities significantly exceed the value of its assets, which will only satisfy around 7% of creditor claims. 

The struggling sugar producer entered voluntary business rescue on 27 October 2022, four months after its unsuccessful capital-raising deal with Magister Investments. 

The Companies Act requires BRPs to deliver business rescue plans within 25 days of commencing their work, but the practitioners have been granted extensions due to the complex nature of the restructuring process. 

In line with the act, secured creditors rank highest in a business rescue. 

“We realise this is a very difficult situation. We have therefore spent a significant amount of time since business rescue commencement evaluating opportunities where construction activities or property development projects could potentially continue with the support of THD’s post-commencement financiers. Discussions with these affected stakeholders are at an advanced stage.” 

Since entering business rescue, THD has continued to operate on a limited basis with the support of post-commencement finance (PCF) from lenders. So far, about R100-million PCF has been secured. Operating costs have been reduced, with cost-cutting and efficiency improvement initiatives continuing, the BRPs said.

The BRPs are aiming to bring existing property developments to either partial or final completion to optimise recovery. THD and its operations will be wound down, and the property assets sold. 

In April, canegrowers bemoaned the BRPs’ failure to pay more than R900-million in levies owed to the South African Sugar Association at the end of March 2023, saying they were running on empty, forced to accept reduced payments for their harvest because sugar companies Tongaat Hulett and Gledhow defaulted on their industry obligations. DM