By Rob Bessinger
Thursday, August 8, 2024 is a crucial day for JSE-listed Tongaat Hulett Limited (THL).
The company will have a chance to move a step closer to a substantially better future when shareholders meet to vote on a debt to equity swap, a win-win solution for all in the bid to save THL.
The shareholder vote is another important step towards THL coming out of Business Rescue after its assets were originally placed in Business Rescue in October 2022 as a result of the effects of fraudulent activity at the company during the preceding years.
The operating THL investments in Botswana, Zimbabwe and Mozambique were not placed under Business Rescue. Immediately prior to being placed in Business Rescue, the company had breached its loan covenants and was unable to pay back or settle the ~R7bn of debt it owed to a consortium of SA banks at the time. The banks had all the assets of THL as security, which assets had a lesser value than the outstanding debt, implying a negative equity value for THL.
Instead of liquidating THL, the directors then placed the company into Business Rescue in order to try save the company. Following a lengthy Business Rescue process, the Vision Investments (Vision) Business Rescue plan (Vision Plan) was approved at a meeting of all creditors on 11 January 2024 and, as part of that plan, Vision had acquired the secured debt owing to the banks at that time. In addition, all unsecured creditors would be settled through a one-off payment.
To improve the balance sheet of THL, Vision have proposed a debt to equity swap, whereby ~R5bn of the ~R8.6bn debt currently owing would be swapped for fresh equity being issued by THL to Vision. The residual R3.6bn of debt still owing to Vision would be held as subordinated long-term debt in THL.
Since the placement of THL into Business Rescue in October 2022, a few key milestones have been achieved. The first milestone was when the banks and Vision entered into a full and final debt purchase agreement ahead of the creditors meeting in January this year.
The banks have been very supportive and facilitated Vision to save THL from liquidation by accepting the Vision offer to acquire all the banks’ debt in THL. The agreement between the banks and Vision is final and irreversible. To date, Vision has complied with the terms of its agreement with banks.
The second milestone was when the Vision Plan was approved at the meeting of all THL creditors in January of this year.
Vision is an entrepreneurial consortium made up of Robert Gumede of Guma Agri, Rute Moyo of Remoggo, Amre Youness of Terris Sugar and Nauman Khan of Almoiz.
Since 2019, the various members of Vision had, in their own right, been involved in various negotiations to acquire all or some of the THL businesses before the 2022 placement of THL into Business Rescue. However, after THL was placed in Business Rescue the Vision members decided to join forces and collectively bid for the company.
At the creditors meeting on 11 January 2024, the Vision Plan was approved without a competing Business Rescue plan after Mozambican company RGS, led by its controversial Chairman Acquil Rajahussen, mysteriously but not surprisingly withdrew a day before the creditors meeting following revelations that RGS had submitted a fraudulent R2b Absa Bank Mozambique proof of funds letter. Similar to the impact of the failed Kagera bid, the failed RGS bid has been extremely costly to Vision and to the company.
Vision decided to lay fraud charges with the South African Police Service against RGS, its directors and in particular its Chairman, Aquil Rajahussen. Vision understands that ABSA Mozambique have also laid fraud charges against RGS in Maputo. Investigations are on-going against RGS, its directors, Rajahussen and the South African legal and financial advisors of RGS who all knowingly participated in the fraud.
Since pulling out of the bid, RGS and its Chairman have embarked on a desperate campaign of disinformation in some media as well as instituting frivolous High Court applications directly and indirectly through Powertrans, a creditor who failed to participate in the THL creditors meeting in January and yet has had the resources to mount a legal challenge on the approved Plan. We note that PowerTrans is merely acting as a spoiler, having not proposed an alternative plan for THL at the time.
It appears there is a misguided or deliberate view that if the Vision plan is seen to have failed, then RGS will get another chance to bid for THL. This RGS media and legal agenda is baseless, vexatious and sensational with the sole purpose to create doubt and controversy whilst knowing very well that the Vision acquisition of THL as approved by creditors in January 2024 is irreversible and steaming ahead.
The third milestone was achieved when the South African Competition Tribunal recently approved the Vision acquisition of THL. Vision has since submitted applications to Botswana, Zimbabwe and Mozambique competition commissions for approvals and is confident that those countries will follow SA's example.
The fourth milestone for THL was the publishing of the JSE Circular regarding the debt for equity swap. At the shareholders meeting convened through the publication of the circular, the long-suffering current shareholders of THL have two options as per the approved Creditors Business Rescue Plan, namely, vote in favour or against the debt for equity swap.
Should shareholders vote in favour, the current shareholders will retain 2.7% of the JSE listed shares of a company that is recapitalised and has a good chance of future growth. Should the debt for equity resolutions not be approved, Vision will have the option of exercising its right in terms of the agreed Vision Plan to conduct a debt for asset swap of all THL assets that are included in the debt package, which include all the assets in the operating businesses in South Africa as well as all shares in the operating businesses across the other jurisdictions.
As part of a debt for asset swap, Vision will move all the operating businesses on a going-concern basis, assets and employees into new entities in which it will have 100% equity interest with no legacy obligations. Current shareholders will receive ZERO value for their shares as the THL entity will be wound down / liquidated through the Business Rescue process.
Whether shareholders support the proposed resolutions or not, the approved Vision Plan will continue to be implemented and THL operations will continue in their current guise or under new entities.
As outlined previously, Vision has no plans to dispose of any THL assets. In terms of the approved Vision Plan, the unsecured creditors will be paid R75m by Vision. That amount is securely in a bank account and will be escrowed shortly for distribution to the unsecured creditors. This is a significant gesture from Vision to support the unsecured creditors, some of whom will continue to be long term suppliers of products and services to THL.
As part of the future vision for THL, the Vision shareholders, who are all successful entrepreneurs, have met with, amongst others, the South African government, the Premier of KZN, the Mozambican Prime Minister, various other Mozambican ministers, the Zimbabwean government as well as IGEPE, the Mozambican Sovereign Fund that already owns ~15% of THL’s Mozambique operations.
THL is a major and responsible corporate citizen in all its jurisdiction. It is a significant regional tax contributor. In Mozambique and Zimbabwe, THL is the largest private sector employer and the second largest employer after government.
The sugar industry in all THL jurisdictions is regulated, consumes substantial water and owns large tracts of productive land. Vision has observed how much the historical regulatory and general stakeholder misalignment has been costly to the industry and to THL in particular.
Therefore, as part of its stated strategy of ensuring long-term strategic and economic alignment across all jurisdictions, Vision has been actively engaging regulators as well as the DFI’s, statutory asset managers and the regional Sovereign Funds to consider co-investing in THL as the pre-eminent SADC and African sugar group.
Vision values DFIs, statutory asset managers and Sovereign Funds as potential key strategic partners for THL and is convinced that all these statutory entities, should they decide to invest in the “new” THL, will add tremendous value as has already been demonstrated by IDC’s provision of a working capital facility for THL during the Business Rescue process.
That facility gave the company and its thousands of stakeholders (staff as well as large and small-scale sugarcane growers) a vital lifeline which was vital for the survival of THL.
Vision has ambitious and well researched plans for THL, including diversification and expansion into energy (Ethanol & Electricity from bagasse) to help alleviate the energy supply and costs in the region. These plans include overall yield improvements and will lead to growth of area under sugarcane and the creation of sustainable jobs.
With Africa still being a nett importer of sugar, Vision is also looking at the potential of new capacity and capability in suitable jurisdictions that have substantial markets and supply deficits.
Vision is long term investor and is committed to creating more sustainable jobs and empowering small-scale sugarcane growers across the regions it operates in.
We are looking forward to the vote by the current shareholders on Thursday 8 August as the penultimate milestone ahead of THL exiting the Business Rescue process soon. Vision is confident that the current shareholders will vote in favour of the debt for equity swap resolutions so that THL can remain listed and be taken out of Business Rescue.
This will provide stability to the industry across the region plus as well as all those whose livelihoods are dependent on a successful THL and, importantly, finally return to the company to being the preeminent sugar group across the region.
THL, its associates, sugarcane growers as well as suppliers are all the owed the chance to protect and preserve this historic sugar company. Vision is looking forward to facilitating the business turnaround of this iconic sugar group and its brands.
* Rob Bessinger is spokesperson for Vision Investments.
** The views expressed do not necessarily reflect the views of IOL or Independent Media.