Tongaat Hulett Limited (THL), shareholders will vote on Thursday for a debt-to-equity transaction that could see the Vision Group, led by Rutenero (Rute) Moyo – not Robert Gumede, as previously reported – acquire a 97.3% shareholding in the company. However, the narrative which suggests that shareholders must vote in favour of the conversion or risk losing everything is rife with misinformation seemingly propagated by the Vision Group itself.
Contrary to claims that shareholders will be left with nothing if they vote against Vision’s debt-for-equity swap, the reality is far more complex. Similarly, assertions that the Vision business rescue plan must be implemented because creditors voted to adopt it, and that Vision already owns THL’s assets (including those in South Africa, Mozambique, and Zimbabwe), are plainly incorrect.
The controversial business rescue plan
The business rescue practitioners’ (BRPs) legal obligation to implement the Vision plan depends on Vision’s ability, from both a financial and regulatory perspective, to honour the plan’s stated objectives by relieving THL of R8.5 billion debt through acquiring the lenders’ claims.
Under the current plan, Vision would convert R4.9 billion of this debt into shares in THL and retain claims worth R3.6 billion, promising more favourable terms for the remaining debt than provided by the lenders. Only after fully acquiring the lenders’ claims can the debt-to-equity transaction proceed granting Vision control of THL. Vision’s full acquisition of the lenders’ claims is the quid pro quo required before the conversion.
However, Vision has repeatedly failed to raise the full funds necessary. In 2023, a previous acquisition agreement between Vision and the lenders was leaked during court proceedings related to THL’s financial obligations to the South African Sugar Association (SASA). This agreement required Vision to pay the purchase price by 06 December 2023, failing which the agreement would terminate.
Vision’s failure to meet this deadline was confirmed during a court hearing on 07 December 2023. Despite this, the BRPs continued to push ahead with the flawed Vision plan.
It appears Vision has not subsequently raised the necessary money. A circular from the BRPs regarding the conversion vote indicates that Vision has acquired only the R4.9 billion portion of the lenders’ claims. The remaining R3.6 billion debt remains with the lenders, leaving THL facing financing costs of R448 million per year.
This raises questions about why Vision has not acquired all the lenders’ claims as promised, and what effect this failure will have on its plan. Without an explanation, the unavoidable inference is that Vision has again failed to raise the full funds.
Concerningly, the secured claim equals the price Vision was to pay for the lenders’ claims. This suggests the lenders potentially permitted Vision to proceed with the conversion because they have security equal to the unpaid purchase price against THL’s assets. This raises the question of whether Vision plans to sell THL’s assets post-rescue to pay the lenders.
Lack of transparency
Alarmingly, the terms of the agreement and any material developments between Vision and the lenders have never been disclosed, deliberately leaving creditors and shareholders in the dark. Creditors and shareholders have a right to this information, especially if it impacts the BRPs’ or Vision’s ability to implement the rescue plan.
The BRPs’ failure to keep creditors and shareholders informed about Vision’s financial position is particularly significant because, during the meeting where the Vision plan was adopted, the BRPs claimed to have proof that Vision had the full cash available with Standard Bank to implement its plan. Any failure by Vision to conclude its acquisition should have been disclosed.
The deviation from the Vision plan, evidenced by the lenders holding onto R3.6 billion of debt, undermines THL’s financial stability and has betrayed stakeholder trust. Furthermore, the BRPs’ claim of ignorance regarding the exact terms of Vision’s agreement with the lenders is either gross dereliction of duty or a deliberate attempt to shield Vision from scrutiny.
The circular to shareholders also suggests that if shareholders vote against the conversion, Vision will simply acquire all THL’s assets and delist THL from the JSE without shareholders’ approval. Recent news articles further quote Vision as saying it already owns THL’s assets. The clear message to shareholders is that if they don’t approve the conversion, they will lose everything. This is false propaganda meant to threaten shareholders into voting Vision’s way.
Under the Vision plan, however, Vision can only abandon the plan and attempt to purchase THL’s assets if shareholders refuse to approve the conversion. The claim that Vision already owns THL’s assets is simply untrue.
Legally, the threat that Vision may simply acquire THL’s assets and delist the company is dubious and unsubstantiated. The Vision plan undertakes to retain both THL’s listing on the JSE and the company’s pre-business rescue structure. Should shareholders reject the conversion, the Vision plan would simply fail.
Intervention to save Tongaat Hulett
Despite these deliberate misdirections, the Vision plan is jeopardising THL’s future, burdening it with unsustainable debt and the risk of asset sales to cover Vision’s financial failures. This situation demands immediate intervention. Regulatory authorities and stakeholders must call for full disclosure of all relevant agreements and hold the BRPs accountable for their mismanagement.
The lenders, which include most of South Africa’s largest financial institutions, should break their silence and confirm the terms of their “secret agreement” with Vision, how it may impact THL’s financial position, and whether or not Vision has met its financial obligations. Otherwise, they risk becoming complicit in any undisclosed financial pitfalls awaiting THL post-rescue, not to mention the utter destruction of value for creditors and shareholders.
Vision’s intentions are inconsistent with the terms of its rescue plan, and fail to provide a viable, equitable solution to relieve THL of its financial distress. The business rescue process must be made transparent and re-evaluated to ensure adherence to the law and principles of fairness and financial prudence.
The future of THL, its employees, and its contribution to the economy depend on rectifying these issues and restoring integrity to the rescue process.
Written By Dr Kobus Laubscher, Agricultural Economist