Sugar giant Tongaat Hulett has been pulled back from the brink of liquidation. (Photo: Supplied) The latest status updates from Tongaat’s business rescue practitioners (BRPs) show that the group’s rescue still depends heavily on continued funding from the Industrial Development Corporation (IDC), the implementation of an agreement with Vision, and the outcome of a court challenge by RGS, which wants the adopted business rescue plan set aside.
The sugar group entered business rescue on 27 October 2022. The latest update is the 42nd monthly report prepared under the Companies Act, which requires business rescue practitioners to report monthly when proceedings have not concluded within three months.
In February, the BRPs applied to the KwaZulu-Natal High Court to discontinue the business rescue and place Tongaat Hulett Limited into provisional winding-up. That application was initially set down for April, then postponed to 17 and 18 June to allow further talks between Vision, the IDC, Tongaat and other stakeholders.
Those talks have now produced two important documents: a Heads of Agreement between the IDC, Vision and Tongaat, and a further post-commencement finance amendment agreement, known as PCF 12. Both were concluded late on 16 June.
PCF 12 keeps Tongaat’s post-commencement finance facility alive until 30 September. The facility, in the amount of R2.5-billion, remains available until that date, unless the business rescue is terminated earlier, a winding-up order is granted, or the adopted business rescue plan is set aside.
That extension was enough for the BRPs to return to court on 17 June and ask to withdraw their own liquidation application. The KZN High Court in Durban granted them leave to do so.
In plain English, Tongaat has been pulled back from the edge of liquidation, but only because its funders and would-be rescuers have agreed to keep the oxygen mask on for a while longer.
The BRPs say they are satisfied there is now a “reasonable prospect” for Tongaat to be rescued, given the IDC and Vision’s commitment to provide funding “without unduly restrictive conditions” and to work together on alternative business solutions.
That is the good news.
Constrained commercial environment
The less comfortable part is that Tongaat continues to operate in what the BRPs call a “materially constrained commercial environment”. The June update flags structural market pressures, import dynamics, customer hesitancy and supply-side constraints as ongoing hits to revenue and cash flow.
Sugar imports remain a sore point. According to the BRPs, continued imports into the South African market, driven by low tariff protection, have displaced locally produced sugar from the domestic market. An International Trade Administration Commission review of the dollar-based reference price underpinning the tariffs is still under way.
/file/dailymaverick/wp-content/uploads/2022/10/h_54100462.jpg "Continued imports into the South African market have displaced locally produced sugar from the domestic market. (Photo: Aaron Ufumeli / EPA-EFE)")
Although the IDC facility is supporting working capital for now, the BRPs warn that headroom remains under pressure because of tough commercial conditions. Payments and drawdowns are also subject to tight IDC controls.
The rescue is not only a Tongaat Hulett Limited story. It spills across the group.
Tongaat Hulett Sugar South Africa’s (THSSA’s) BRPs remind affected persons that the company operated as an agent for a previously undisclosed principal, Tongaat Hulett Limited. As a result, its business rescue proceedings are “wholly dependent” on and “inextricably linked” to THL’s rescue plan.
Voermol Feeds is in a similar position. Its BRPs say its proceedings are linked to THSSA and Tongaat Hulett Limited (THL), with Voermol having operated as an agent for THSSA, while THSSA operated as an agent for THL.
For both THSSA and Voermol, the withdrawal of the liquidation application is being treated as a positive development. But both remain exposed to the same central risk: if THL’s rescue plan fails, they are all up the creek.
RGS’s counter-application to have Tongaat’s business rescue plan set aside and to compel Vision to disclose certain documents was heard on 18 June. Judgment has been reserved.
The outcome of that application could still change the path of the rescue. The BRPs for THSSA and Voermol say they are monitoring the RGS matter and will advise affected persons of any material developments.
Tongaat Hulett Developments, meanwhile, remains on a separate track. Its approved business rescue plan continues to be implemented, and the THL report says it is expected to continue unaffected after the withdrawal of the liquidation proceedings.
But the property development arm is hardly roaring ahead. Its June update says no active construction projects remain, although limited infrastructure projects are being considered, subject to funding and commercial negotiations.
The update also says post-commencement finance for Tongaat Hulett Developments continues to be requested by the BRPs and approved by lenders on a monthly basis, and remains critical to a successful outcome.
So this is where Tongaat now stands: liquidation has been avoided for the moment, the IDC has extended funding until the end of September, Vision remains central to the proposed restructuring, and the BRPs again say rescue is reasonably possible.
For affected employees, growers, creditors and communities in KwaZulu-Natal, the latest update is good news, but it is not yet a recovery story. DM