By Dr Kobus Laubscher, Agricultural Economist
It appears that there is still light at the end of the tunnel in the Tongaat Hulett Limited (THL) saga, following a major development for the beleaguered sugar producer. A significant lifeline has been presented to the business rescue practitioners of THL that could save the company from potential liquidation and offer a more favourable outcome for both shareholders and creditors.
The interested party has proposed that a R8 billion capital injection be used to fully settle the claims of creditors, including the settlement of 100% of unsecured creditors’ claims and approximately R550 million to settle the South African Sugar Association’s statutory claim against it for outstanding levies. A further allocation of 10% of the share capital is to remain in the hands of the current shareholders, which would represent four times the value offered by the Vision consortium.
A welcome alternative to Vision’s predatory plans
So, nearly two years after THL was first placed in business rescue, all eyes will now be on the upcoming THL shareholders meeting on 08 August. The Vision consortium, led by controversial businessman Robert Gumede, has informed shareholders that they must either vote for its planned debt-to-equity swap, allowing Vision to gain control of the company, or face walking away with nothing.
However, key shareholders, including the Public Investment Corporation, will be convening during this meeting, and could potentially prevent THL from being taken over by the Vision group.
To explain Vision’s plan for THL, shareholders’ stake in THL would be reduced to just 2.7%, while Vision would retain R3.6 billion of its debt in THL – making it unlikely that shareholders would actually see any returns on their stake.
Tellingly, despite announcing in January 2024 that their proposed plan for the company was accepted, the Vision group have also yet to make the necessary payments to cement their offer for THL. Moreover, serious question marks remain over whether the Vision group have even raised the capital needed to fulfil their obligations and secure THL’s future, suggesting potential irregularities or undue influence in the initial acceptance of Vision’s bid.
The Vision plan would result in the consortium acquiring THL at a significant discount, while leaving dozens of unsecured creditors and small businesses hanging out to dry. Consider, for instance, that Vision has allocated just R75 million for repaying unsecured creditors – over ten times less than the alternative proposal and translating to less than 5c in the rand.
The threat of ‘Plan B’
In a circular distributed to THL shareholders earlier this month, Vision and THL’s business rescue practitioners threaten that if this resolution is not passed, they will simply switch to ‘Plan B’ without shareholder approval.
As the metaphorical ‘final solution’, this would see the business rescue practitioners attempt to unilaterally sell all THL’s assets to Vision or parties nominated by Vision. This, in turn, would risk the break-up of THL, bringing the 131-year-old company to an ignominious end, and jeopardising thousands of jobs and livelihoods across KwaZulu-Natal.
Additionally, they claim that this would result in shareholders receiving a nil return rather than retaining a 2.7% share of THL. They also warn that THL could face liquidation if the resolutions are not adopted, on the basis that there is no viable alternative plan.
Critically, this ‘Plan B’ does not represent a lawful or competent business rescue plan. As a result, if shareholders were to vote against the debt-to-equity conversion, the business rescue practitioners would not be able to lawfully sell THL’s assets without a new business rescue plan being adopted. Furthermore, the sale of the assets will require shareholder approval, despite what the business rescue practitioners and Vision group may claim.
Ultimately, THL shareholders are not caught between a rock and a hard place – there is now a viable alternative of which the business rescue practitioners have been fully apprised.
South Africa’s sugar industry is worth in excess of R18 billion per annum, and THL’s fate will directly impact some 20,000 sugar cane growers in KZN. With so much at stake, it’s up to shareholders to vote with their conscience, stand up to Vision, and pick the best deal for not only themselves, but also for THL creditors, employees, and the thousands of people dependent on the business.