Two months. That’s the reprieve the Industrial Development Corporation (IDC) has granted to embattled sugar producer Tongaat Hulett.
The state-owned IDC, which traces its roots to 1940, on Thursday forked out a further R200m to stave off Tongaat Hulett’s implosion, taking its post-commencement funding to an eye-watering R2.5bn since the sugar producer went into business rescue in 2022.
The cash injection saw Tongaat Hulett’s business rescue practitioners ask for a postponement of the liquidation application they launched in February — after running out of funding, with the IDC not coming to the party at the time.
The IDC, a lender of last resort, has increasingly been forced to step up and bail out stalwarts of South Africa’s industrial base — including ArcelorMittal South Africa.
The stay of execution the IDC has granted to Tongaat Hulett is not without its challenges. These challenges are highlighted in the now-frozen liquidation application set to be heard mid-June, with the business rescue practitioners hoping a long-term funding solution for the group will have been found to stave off its demise.
The application lays bare the dire state of affairs Tongaat finds itself in — a situation that worsened in October when creditors demanded R11.7bn in payments.
The group’s financial plight led to several meetings between the presumptive buyers of its South African business — the Robert Gumede-backed Vision Consortium, the IDC and top officials from the department of trade, industry & competition.
The 134-year-old Tongaat entered business rescue in October 2022 following severe historic accounting irregularities, financial misstatements and governance failures under former senior executives, who are facing criminal charges.
Gumede, a tech billionaire, emerged as a white knight during the process, which made the rescue of the business viable thanks to the IDC’s R2.3bn post-commencement facility that covered daily expenses such as salaries and supplier payments.
For the state, the failure of the rescue plan adds to a list of deindustrialisation problems
But Gumede’s Vision Group — whose plan to take ownership of Tongaat assets in exchange for about R8bn for assuming portions of the sugar maker’s debt had secured shareholder and creditor approval — failed to refinance the IDC’s post-commencement facility, deposit R517m into escrow for the South African Sugar Association and provide R75m for concurrent creditors.
With these commitments unmet, and Vision refusing to extend the closing deadline, the practitioners applied for provisional liquidation.
For the state, the failure of the rescue plan adds to a list of deindustrialisation problems facing the IDC and trade, industry & competition minister Parks Tau.
The IDC, whose mission is to act as a countercyclical investor — stepping in when private capital is scarce or risk-averse — is already weighing up buying ArcelorMittal and now faces a second high-profile workout that tests its risk appetite and sharpens political scrutiny.
In granting the postponement of the liquidation application, judge Rithy Singh acknowledged that “Tongaat is the lifeblood of KwaZulu-Natal”.
Vision said the temporary reprieve offers a chance for the parties — the IDC, business rescue practitioners and itself — to approach the process with the “same urgency and good faith that this moment demands”, arguing that solutions can be found if the parties resolve to find them.
“We have made multiple concrete proposals to the IDC, business rescue practitioners and other stakeholders in recent weeks. It is our firm view that a negotiated solution remains achievable and that the interests of all stakeholders, creditors, growers, employees and the state are best served by a structured rescue rather than a forced liquidation,” the consortium said.
“Vision has access to funding to complete its business plan, stabilise Tongaat Hulett operations and restore the business onto a growth path. As is normal in transactions of this scale, the funding sources are both internal and external,”
“IDC stated in its submissions that as a developmental institution, such funding will suit its mandate, and it will consider suitable proposals. We are not in a position to force the IDC to participate but welcome their interest and engagement.”
The wheels began coming off for Tongaat in June 2019 when it asked the JSE to suspend trade in its shares after an investigation flagged accounting practices that meant its financial statements could not be relied on.
The JSE said the accuracy and reliability of financial information published by companies were the cornerstone of a fair and transparent market.
The company, which traces its roots to the 1850s, in 2020 initiated proceedings against former CEO Peter Staude, former CFO Murray Munro and former finance executive Sean Slabbert, demanding R450m from them based on a damning PwC forensic investigation released a year earlier.
In 2022 the men were charged with fraud amounting to R3.5bn. According to the provisional indictment, they acted with a common purpose to commit the crimes, related to about 69 property deals involving Tongaat Hulett Development, between 2015 and 2018.
Business Times
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