MOZAMBICAN family-owned group RGS are in the running to take over ailing Tongaat Hulett (THL) with a R3.6 billion debt-for-equity offer, plus some R500 million in working capital.
The terms of southern Africa’s biggest sugar producers’ business rescue plan that was released yesterday showed that Tongaat will also retain its listing though the process and existing shareholders will retain a 5% shareholding in Tongaat.
Tongaat went into business rescue in October last year.
RGS also undertook to sell down its 95% shareholding to a 51-60% stake within a year of the deal being done, in order to leave sufficient free float in Tongaat’s shares to enable it to remain listed.
RGS Holdings is owned by the Gulamo family and produces sugar in Marromeu, Sofala province in Mozambique, but it also has tobacco, tea, beverages, edible oils and cereal business interests.
Tongaat’s business rescue practitioners (BRPs) said yesterday that RGS’s acquisition aimed to relieve THL of its financial distress, maintain the operations of the businesses of THL, and avoid the otherwise catastrophic social impact that would result from a collapse of THL.
As an indication of this social impact, particularly in KwaZulu-Natal, at the peak of the sugar season THL’s operations employ more than 23 000 people, support more than 185 000 employment opportunities and provide a livelihood to more than 21 000 farmers, many of whom are small-scale growers.
The BRPs had in July selected the Kagera Group from Tanzania as a preferred bidder, but RGS, and the so-called Vision Consortium that had included Terris Sugar and South African businessman Robert Gumede, were two more recent contenders.
The BRPs said the Vision Consortium had not provided acquisition funds by the time the BRPs were required by the lender group to provide a business plan that could be voted upon by the lenders on December 8.
"The Vision Consortium entered into an agreement with Tongaat's lenders which was not completed. They then entered into another agreement, which is currently not completed, but which could be completed by the time of the meeting. They will then become the majority creditor of THL"
Mauritius-incorporated RGS, through a South African subsidiary RGS Bidco, planned to acquire the claims and security held by Tongaat’s lender group of R7.7bn. RGS Bidco intended to convert 100% of those funds into equity in THL.
”This, together with the other proposals put forward in this business rescue plan will result in the continued trading of THL substantially in its pre-Commencement Date composition,” the BRPs said.
They said had THL gone into liquidation, its lenders, shareholders and unsecured lenders would likely have received nil.
According to the business rescue plan, the South African Sugar Association’s (Sasa) claims against THL would be settled in full after export proceeds owing, and any other obligations that Sasa owed to THL, were settled.
RGS had undertaken not to implement any retrenchments of any THL employees, other than potentially senior management, within two years of the transaction, and any job losses suffered “would be a last resort and all affected employees will be entitled to their full retrenchment package”.
Since Tongaat went into business rescue in October 2022, the BRPs have tried to reduce operating costs and improve efficiency wherever possible. And these initiatives were anticipated to continue to be implemented throughout the business rescue process.
The BRPs said Sasa ranked as an unsecured creditor in the business rescue plan. Immediate payment of the Sasa amounts would have the effect of elevating Sasa’s status to that of preferred creditor. This would unduly prejudice the remaining body of creditors and would be legally impermissible, and place the rescue of THL at risk, they said.