Things have been sour for sugar giant Tongaat Hulett since 2019 when a new management team uncovered accounting failures and alleged fraud that led to a R12-billion reversal in the company’s valuation.

The criminal trial of key former directors is yet to get properly under way.

With a group of banks holding the company over a barrel of debt, there have been increasingly desperate efforts at keeping alive a business that supports thousands of jobs, especially in KwaZulu-Natal.

What has emerged and is of particular concern is the opaque nature of the various deals cooked up between management, the lender banks, state funders such as the Industrial Development Corporation (IDC) and the Public Investment Corporation (PIC), as well as, latterly, the business rescue practitioners (BRPs).

The failed Rudland gambit 

First, there was the attempt in early 2022 by Tongaat Hulett management to hand control of the company to the controversial Rudland family of Zimbabwe. That attempt was abandoned following disclosures by amaBhungane and the Takeover Regulation Panel that linked tobacco mogul Simon Rudland to the deal.

Incredibly, banks and lawyers for the deal gave it a clean bill of health.

Rudland has since been singled out in the Al Jazeera “Gold Mafia” exposé as one of the alleged kingpins of a Zimbabwean money laundering and gold smuggling network, though he has denied this and threatened to sue Al Jazeera.

Following the collapse of the Rudland deal, Tongaat Hulett was placed in voluntary business rescue while the BRPs sought a buyer who could inject enough cash to keep the banks (who were still owed about R7-billion) at bay.

But the Rudland experience – and the fact that sugar is known in the region as a risk commodity for trade-based money laundering – suggests a need for scrutiny of anyone seeking control of such a strategic company.

Preferred bidder

In July the BRPs announced the preferred bidder: Kagera Sugar, a little-known Tanzanian producer run by multi-millionaire brothers Seif Ali Seif and Nassor Seif, which had submitted a R3.56-billion bid.

There followed a furious lobbying and media campaign, by two other bidders in particular.

One was the Zimbabwean Sovereign Wealth Fund, which falls under the ministry of finance where Zimbabwean President Emmerson Mnangagwa’s son Kudakwashe (34) has been appointed deputy minister. The fund had attempted to make a bid for Tongaat’s Zimbabwe assets but was rebuffed by the BRPs, who did not want to break up the company whose Botswana, Mozambique and Zimbabwe sugar operations are not financially distressed.

Indeed, part of the parent company’s woes stem from its inability to access profits from Zimbabwe because of the country’s exchange control restrictions, and sugar industry insiders say vultures are still circling trying to pick up the Zimbabwean assets for next to nothing.

Blurry Vision

The other party aggrieved by the selection of Kagera was the Vision consortium (previously dubbed the Terris consortium), a rival bidder characterised by various somewhat opaque offshore constituents, although its lawyers say there is nothing unusual about this.

Vision’s frontman in South Africa is IT mogul Robert Gumede, represented via Guma Agri and Food Security Ltd (Mauritius).

Alongside Guma in the consortium is Amre Youness’ Terris AgriPro, also registered in Mauritius, which is owned by the Terris Fund SPC registered in the Bahamas, of which, the lawyers disclose, Youness is the ultimate beneficial owner.

Youness, notably, was a longtime consultant to three central Asian oligarchs: Alexander Machkevitch, Patokh Chodiev and Alijan Ibragimov, also known as the Trio, and at the time served as chair of two of their South African investments, Shaftsinkers and Samancor Chrome, held through their investment company International Mineral Resources BV (IMR).

One of the Trio’s more significant brushes with notoriety came via the London listing of, and subsequent investigations into, their commodities group: Eurasian Natural Resources Corporation (ENRC).

Both the listing and the investigations eventually came to nought, but some flavour of the frisson surrounding ENRC and its founders is provided by a Financial Times investigation into the mysterious deaths of three South Africans.

Youness, through the consortium’s lawyer, insisted that IMR Management Services (IMSL) where he was for a time the chief executive, was a completely separate and distinct entity and acted only as a corporate adviser to International Mineral Resources BV in a consulting capacity.

“Mr Youness had zero involvement with any of these allegations… Raking up and relying on outdated, unverified, and unproved allegations against the ENRC principal shareholders, in order to cast doubt on Mr. Youness’ character, is unfair and unprofessional.”

The technical partner in the consortium, Pakistan’s Almoiz Industries, was slammed by a Pakistan Sugar Inquiry Commission report in May 2020, which accused the company – among others in the nation’s so-called “sugar mafia” – of cheating both farmers and the tax authorities. The consortium’s lawyer alleges these allegations were politically motivated and says they came to nothing.

Undisclosed Zimbabwean interests are represented by Mauritian company Remoggo PCC, described as an investment holding firm with a portfolio of investments in Zimbabwe and the region. Rutenhuro Moyo is the Managing Partner at Remoggo and has served on the board of Tongaat Hulett’s Zimbabwe subsidiary, Hippo Valley Estates, since 1 August 2020.

Kagera blocked

Following the nod for Kagera, the Vision group wrote to the BRPs objecting to the decision, and also to the IDC which it accused of favouring Kagera with funding while refusing to consider Vision.

The IDC was persuaded to conduct an internal inquiry, which led to a senior executive resigning, allegedly for approving a funding commitment for Kagera without the necessary authority.

By October, Kagera appeared to be struggling to raise finance, and a new name appeared: the Mozambican family-owned RGS Group, which reportedly submitted a R6-billion bid, almost double that of the preferred buyer.

That left the process somewhat in limbo, until a City Press article on 5 November trumpeted, “Robert Gumede’s consortium takes control of Tongaat Hulett”.

The story suggested that Vision had outsmarted everyone by doing a deal directly with the lender group of banks by buying Tongaat Hulett’s debt (at a discount) in order to assume a controlling position as the largest creditor.

This would effectively block everyone else because Vision/Terris would have the majority vote at the creditors’ meeting to approve the business rescue plan.

“Terris Sugar now holds over 80% of creditors’ votes and any bidding company only requires 75% of the votes to succeed. It will still inject the R3.6-billion required for the company’s assets,” the paper proclaimed.

It seemed the deal was sewn up.

Not so fast

However, to clinch the deal Vision had to come up with the money.

We know from subsequent court papers that on 3 November the Lender Group notified the BRPs that they had reached agreement with the Vision parties. This transaction was seemingly never consummated.

A new agreement on 20 November 2023 apparently made provision for payment to be made by Vision to the banks by no later than Wednesday, 6 December.

That was two days before the date announced by the BRPs – Friday, 8 December – on which creditors would have to vote for one of two rescue plans for Tongaat Hulett: that of Vision/Terris or the competing offer of Mozambique’s RGS, owned by the powerful Gulamo family.

As of Thursday morning on 7 December, the advocate appearing in the Durban high court on behalf of Vision was forced to tell Judge Rashid Vahed that no money had been paid to the banks.

He was eager to assure the court – and a courtroom full of opposing lawyers – that the money was “still available” and that Vision’s bid was still on the table. No payment had been made, he tried to suggest, because of what he termed the current “uncertainties”.

But what were these “uncertainties” and how did they end up in front of Judge Vahed?

To understand that, we need to take a step back and examine how the South African sugar industry is regulated.

Sasa and the Sugar Industry Agreement

Sugar production is important to the South African economy. Evidence before court was that the industry generates in excess of R18-billion annually and creates between 65,000 and 85,000 direct jobs, along with 350,000 indirect jobs.

As Judge Vahed noted, sugar is particularly significant for the rural areas where cane is grown and local economies are boosted by the proximity of sugar mills and the infrastructural support they bring.

Because sustaining the sugar industry is a matter of national importance, the South African Sugar Association (Sasa) has been given statutory recognition and powers via the Sugar Act and the Sugar Industry Agreement.

Sugar is globally oversupplied and South Africa is vulnerable to dumping by international producers – the import of cheap sugar at prices that undercut the price at which the local industry can viably produce.

To counter this threat the government imposes anti-dumping duties on imported sugar in order to shield domestic producers.

In addition, the Sugar Industry Agreement creates a revenue-sharing regime through which local sugar production is regulated.

As the judge highlighted, “The revenue-sharing arrangement is based on the central and overarching principle that the growers, the millers, and the refiners should all benefit from an equitable division of the proceeds of the domestic market, and all be insulated against the risk of the export market.”

The overproducer

Tongaat Hulett is an overproducer against its regulated quota and must pay into the general fund for redistribution to other growers, millers and refiners.

The internal transfers that are managed by Sasa can be large.

Around the time it was placed in business rescue, Tongaat Hulett received an assessment of levies from Sasa amounting to more than R400-million.

It did not pay.

Following the institution of business rescue, the BRPs took the view that they were entitled in law to suspend these payments, and so the bill owed by Tongaat Hulett has grown to almost R2-billion, according to Sasa (although this figure may be subject to dispute).

These debts have a knock-on effect on the industry. In court papers, another large producer, Illovo Sugar, said that Tongaat Hulett’s non-payment had, as of 31 March 2023, caused lllovo to suffer a loss of R153-million.

Illovo told the court, “The threat of non-payment by THL [Tongaat Hulett Ltd] is even more immediate and serious for smaller millers and growers… [the] business rescue plans refer to the human and social catastrophe… if THL is placed into immediate liquidation…

“The elephant in the room is the greater human and social catastrophe that will be caused by THL if it again fails to pay its redistribution obligations which will drive the entire sector into ruin, beginning with small-scale growers.”

Litigation

The industry was so concerned about Tongaat Hulett’s non-payment that in June this year another big player, RCL Foods, lodged an urgent interdict to stop the business rescue practitioners from convening a meeting of creditors to consider the rescue plan that was then on the table because it did not make provision for the outstanding levies to be recovered.

That interdict was withdrawn only because the BRPs postponed the creditors meeting and promised to pursue a high court ruling on whether, as they claimed, the business rescue provisions of the Companies Act allowed them to suspend payments and treat Sasa as just another unsecured creditor which might get paid a few cents to the rand when the business was finally sold or liquidated.

That issue ended up before Judge Vahed. On 29 November, by agreement with the parties, he handed down a one-line ruling dismissing the BRP’s case with costs and giving notice that the full judgment would be handed down on Monday, 4 December.

The urgency to obtain clarity on whether Tongaat Hulett was entitled to withhold those levies was based on a deadline set by the creditors for the business rescue plans to be published by 29 November, in order to ensure that a vote on these plans could be held by Friday, 8 December.

The ruling should have given the BRPs pause, despite the absence of a full judgment.

Potentially it instantly punched an extra R2-billion hole in Tongaat Hulett’s balance sheet and called into question the business rescue process.

Instead, the practitioners published two plans – the Vision plan and the RGS plan – in which they maintained that the court was wrong to dismiss their application and that they intended to appeal.

A damning judgment

When the full judgment was published on 4 December, it eviscerated the BRP’s case.

It found Tongaat Hulett’s obligations to Sasa were statutory (derived from law) not contractual, and therefore could not be suspended by business rescue.

“To put it bluntly: if a company cannot comply with its statutory obligations, then it cannot be rescued and must seek liquidation.”

Judge Vahed found that, given that payments had been suspended in breach of the legal obligations, Sasa must receive preference (priority) in the business rescue:

“This is a consideration which the practitioners ought to take into account when determining whether the business is capable of rescue or whether a better return will result in liquidation.”

Given this ruling, RCL Foods and Sasa launched urgent applications to stop the creditors’ planned 8 December vote in favour of the Vision or RGS business plans.

In court papers, they argued that both plans put forward by the BRPs were unlawful in that they did not recognise and encompass the statutory obligations towards Sasa.

At an urgent hearing in front of Judge Vahed on Thursday morning, counsel for the BRPs agreed the vote would have to be postponed, but only until 14 December, because the Industrial Development Corporation, which has been funding the business rescue, was going to shut the taps.

The interdict will now be argued on 13 December and Vahed will have to give a snap judgment on whether the vote can go ahead the next day.

Meanwhile, the swirl of questions around the players and process is only getting louder.

Questions for the BRPs

The Mozambican bidder, RGS, has delivered an extraordinary series of allegations, in effect accusing the BRPs of manipulating the rescue process.

Read more Daily Maverick Tongaat Hulett bidder in scathing attack on business rescue process 

But RGS is not the only critical voice.

In its urgent interdict to stop the vote, RCL Foods was scathing about the BRP’s decision to publish the two rescue plans despite Vahed’s judgment.

RCL stated, “Quite apart from demonstrating an alarming contempt for the order, this attitude demonstrates an unwarranted degree of arrogance on the part of the practitioners or those entities who may be driving the business rescue process, be they the lender group… or the competing bidders under the two plans.”

It noted that even before receiving the full judgment, the BRPs expressed the opinion they were still entitled to suspend the statutory obligations:

“Their belief or opinion is legally irrelevant, and their willingness to conduct themselves by privileging their opinion over an order of court is wilful self-help, which our courts have repeatedly deprecated.”

By this, RCL meant the BRPs were endeavouring to go ahead and make an omelette that could not later be unscrambled.

In their provisional answer (both sides will file more complete papers ahead of argument on 13 December) BRP representative Gerhard Albertyn said they still believed the proposed rescue plans were lawful and viable.

“Their terms and/or implementation will not cause Sasa or RCL irreparable harm… On the contrary, preventing… the vote… will likely lead to THL’s liquidation — laying to waste all the work done and the money expended in the business rescue, and redounding to the permanent and unjustifiable prejudice of THL, its creditors, employees, shareholders and other affected persons, as well as the sugar industry and the public at large.”

Rather liquidate?

However, in an affidavit in support of RCL Foods, Illovo Sugar took aim at the business rescue outcomes, pointing out that Tongaat Hulett’s liabilities have increased by over R3-billion in six months.

“THL’s state of insolvency is rapidly increasing,” Illovo alleged.

It noted that according to the first business rescue plan published by the BRPs on 31 May 2023, Tongaat Hulett had assets to the value of R5.897-billion and liabilities in the amount of R9.882-billion as of 30 April 2023.

Now, according to the RGS and Vision plans published at the end of November, liabilities as of 31 October 2023 have increased to R13.059-billion, while there has been no increase in the value of the assets.

Notably, this deterioration flowed from Tongaat Hulett’s debt to the IDC for loans made since the commencement of the business rescue. This had increased from R613-million to R2.118-billion.

The other major liability was indebtedness to Sasa, which had grown to R1.6-billion, according to figures contained in the rescue plans.

Illovo said there were still many regulatory, procedural and financing hurdles: “The business rescue proceedings therefore may continue for many months or even years.”

Illovo alleged there was a real risk that Tongaat Hulett might be unable or unwilling to pay the outstanding industry levies, and that “the harm that this would cause to participants in the sugar industry will certainly be irrecoverable, and may, for many of the participants in the industry, be irreparable.”

On the other hand, Illovo argued that if Tongaat Hulett were to be liquidated, its productive capacity would be taken over by a new miller who would immediately be required to honour any new redistribution payments:

“That scenario would be infinitely preferable to the sugar industry as a whole than the ‘business rescue’ process envisaged, in respect of which ongoing obligations heap up with no realistic prospect of being discharged, to the catastrophic prejudice of the industry as a whole and the benefit only of THL’s secured lenders.”

In its replying affidavit, the Sugar Association was unequivocal: the BRP’s decision to suspend payments to Sasa was ruled unlawful by Judge Vahed, which in turn rendered the business plans unlawful.

Sasa must be paid, finished and klaar.

Sasa also took aim at the banks, stating: “It appears that the proposed business plans are focused on the rights and interests of the Lender Group, not all creditors.

“First and foremost, as consistently stated, a vote cannot take place on an unlawful plan. Second, it is not Sasa or RCL that is pushing THL into liquidation, it is the Lender Group that is doing this.

“That is because they insist on payment of their debts to the detriment of the entire sugar industry, not just THL. In effect, this statement seeks to hold Sasa hostage: Sasa must forego its statutory rights in favour of the Lender Group’s contractual rights or be branded as the cause of THL’s liquidation. This is factually unsustainable and legally untenable.”

Some unresolved questions about Vision

While Amre Youness from Terris has distanced himself from any negative association with the Kazakh oligarchs, his responsiveness to allegations of corporate manipulation has been called into question.

His name came up in a 2019 case lodged by the Association of Mining and Construction Union (Amcu), in which Youness was cited as the third respondent, with Samancor being the main target.

In that case, a former Samancor director turned whistle-blower, Miodrag Kon, described various ways in which money was allegedly siphoned out of Samancor to the detriment of the company and minority shareholders, including via “marketing fees” paid into an offshore entity called Samchrome in which a former shareholder allegedly had a beneficial interest.

In his affidavit, Kon states that “in 2006, I started to be uncomfortable with what was going on at the company… I approached Ahmed Youness… [from IMR] questioning Samancor’s and their own disadvantageous relations with Samchrome Ltd Malta.”

Kon attested, “As a manager of shareholder relations, I travelled to London for a meeting with the Chair of the Board, Mr Youness… Mr Youness told me at the meeting that he already knew that [the former shareholder] had taken out ‘500 million dollars’… I saw no action taken by Mr Youness after this meeting.”

The payment of marketing fees was later transferred to another company, Samchrome FZE Dubai.

Kon stated, “It is my understanding that Samchrome FZE Dubai continues to provide marketing services to Samancor on the same or similar terms. I believe this is to the prejudice of Samancor’s minority shareholders as 9% is far too high a fee for the services actually rendered.”

The lawyer for the Vision/Terris consortium pointed out that the papers were never served on Youness and that he never had an opportunity to rebut the allegations because this lawsuit was withdrawn.

The suit was terminated in response to an agreement by Samancor in July 2021 to appoint audit firm BDO to conduct an investigation. BDO found no wrongdoing, but its confidential report is still the subject of litigation by Amcu.

The consortium lawyer said, “Mr. Youness has no knowledge of the BDO report or the status of the agreement with Amcu. Mr. Youness has no knowledge of Mr Kon’s allegations, all of which took place long before Mr Youness was involved.

“Mr Youness had no involvement in the creation of the marketing agreement… However, it is worth noting that a margin of 9% is nothing more than a complete fantasy. The typical net profit margin of a trading business is closer to 1%, which was the case for Samchrome.”

She added: “Your determination to smear Mr Youness is unprofessional and defamatory. Mr Youness is a respected international investor who is part of a consortium that is seeking to save a major South African corporation.”

Almoiz, Vision’s technical partner

On the face of it, the Pakistani Sugar Commission report is pretty damning, but the lawyer for the Vision consortium told us that “nothing ever came out of the commission. It was widely criticised for being politically motivated, flawed and lacking credibility…

“No convictions (even against the targeted political group) were ever achieved, and not a single charge was formally levelled against any other party, let alone Almoiz.”

She said that the World Bank’s compliance arm has carried out its independent diligence on the Sugar Commission allegations and concluded that not only could it continue to collaborate with Almoiz, but that it would also proactively work to expand its relationship with the Group.

The report did, however, produce some action.

The Competition Commission of Pakistan conducted raids at the Pakistan Sugar Mills Association (PSMA) and imposed penalties totalling Rs44-billion on the PSMA and its member sugar mills – including Almoiz – for their alleged involvement in cartelisation.

“Cartelisation in the sugar industry appears to be compulsive or pathological where players collude and engage in collusive practices as a means to an end,” the majority wrote in the infringement decision.

The finalisation of this case has been delayed by the failure to appoint a chair of Pakistan’s Competition Appellate Tribunal, but this has recently been remedied and the Tribunal has announced it will be hearing the case.

Questions about the other bidder: Mozambique’s RGS

Perhaps most notoriously, the Gulamo family, which owns RGS, features in a 2010 Wikileaks dump of US embassy cables (specifically this one from 2004) which purported to link the Gulamo family to the drug trade.

RGS executive chair Aquil Rajahussen has convincingly argued that the US diplomat got it wrong, confusing the Gulamo family with alleged drug dealer Gulamo Rasul Moti.

Rajahussen told amaBhungane, “The individual in question is not Rasul Gulamo. His FIRST name is Gulamo, and to the best of my knowledge, his surname is Rassul… I want to clarify that I have no relationship with this individual… The first I learned about him was through WikiLeaks. I have never met him… Given the prominence of our family, the media would not have failed to mention an association if one existed.”

“We have no involvement in contraband or anything deemed unlawful under the laws of Mozambique or Islam; Further, there have never been any credible allegations to the contrary.”

That is perhaps not quite 100% accurate.

In 2017, the Gulamo family – and in particular Aquil Rajahussen – were implicated in an alleged money laundering scheme on behalf of former Minister of Mines and Geology for the Republic of Guinea, Mahmoud Thiam.

Thiam was sentenced in the US to seven years in prison for laundering bribes paid to him by executives of China Sonangol International Ltd. and China International Fund, SA.

Thiam used some of the Chinese bribe money to buy a $3.7-million estate in Dutchess County, New York.

A Gulamo group company, Sociedade Saboiera De Nacala Lda, was allegedly used to launder the cash. The agent of Sociedade was Aquil Rajahussen, described as Thiam’s friend.

Two tribunals, the US court and the London court of international arbitration, appeared to find that Rajahussen knew Thiam was using Sociedade Saboeira De Nacala to conceal the transfer of funds.

Rajahussen denies this.

He explained, “Mahmoud Thiam was indeed a long-time acquaintance from our youth, and we maintained a friendly relationship over the years. However, it is crucial to clarify that I was neither involved nor implicated in any of his schemes or engaged in any business dealings with China Sonangol International, China International Fund, SA, VALE S.A., or BSG RESOURCES LIMITED, as mentioned in your inquiry. I became aware of his illegal activities only at the time of his prosecution.”

Rajahussen said that Thiam had sought a loan to buy the property but that he had instead decided to personally purchase the property, allowing Thiam to lease it on the understanding that he had an option to buy when he had the necessary funds.

“During the subsequent legal proceedings against Thiam, our arrangement came under scrutiny. While I was not directly involved in the proceedings and unaware of the findings, the authorities attempted to attach the property, claiming it belonged to Thiam. I contested this order, asserting that the property was rightfully mine and presented all such evidence necessary to prove as such to the courts. I succeeded in winning the case in the State of New York.”

Rajahussen does not deny his closeness to the ruling Frelimo party in Mozambique.

“I, like Patrice Motsepe [and the ANC], am openly a member of the Frelimo Party. I believe that being a member of a political party is a legal and permissible act in both SA and Mozambique.

Similar to Patrice Motsepe, I engage in lawful contributions to political campaigns.

“Importantly, my company has no need for reliance on political favours. We do not conduct business with the government, nor do we participate in government tenders. We make absolutely no revenue from government revenues.” DM