Tongaat BRP: SA Canegrowers worried about R400m payment delay

With sugar producer Tongaat Hulett announcing that it will enter a voluntary business rescue process, SA Canegrowers are concerned that the company may not be able to honour a payment of R401 million owed to growers for sugarcane delivered in September.

On Thursday, agri-processing giant Tongaat revealed to the market that its South African operations are drowning in a pool of debt, estimated to be more than R5 billion, and its lenders have grown tired of bailing the company out.

Read: Tongaat Hulett forced into business rescue

According to the KwaZulu-Natal-based company, the decision to embark on business rescue is the only way to restore the business’s health, return value to its shareholders and protect jobs, stakeholders and creditors.

However, for growers and farm workers the biggest concern is whether or not they will be paid on time for services rendered to the company.

The association further expressed concerns that the delays in payments will have catastrophic consequences for a number of small-scale growers who made their first deliveries in September, potentially prompting unrest in the province.

“This move means that Tongaat Hulett has lost access to its bank accounts, which in the immediate term means that over R401 million that was due to be paid to growers at the end of October 2022 will likely not be transferred on time,” the association said in a statement on Friday.

“Questions also remain about how payments will be made for deliveries in October, November, and December 2022, which means the impact on growers is likely to worsen if the mills do not remain operational.”

“This situation could plunge thousands of growers and workers into destitution and raises the risk of unrest in KwaZulu-Natal’s rural cane-growing communities.”

No guarantees 

In a response to questions posed by Moneyweb, Metis Strategic Advisors, the firm appointed by Tongaat to handle the rescue process, could not give any guarantees that concerns raised by SA Canegrowers were unfounded.

In its response, Metis Strategic Advisors made no mention of the R401 million in payments that is due to be paid to growers for their September deliveries.

Instead, the company said: “The BRPs have commenced their investigation into the affairs of the company in order to determine an appropriate way forward.”

“The practitioners now have management control of the company. However, they may delegate responsibilities to the management team and or Board to continue to exercise their pre-existing functions subject to the supervision and/or oversight of the BRPs.”

“In order for these two operations to move ahead under the business rescue process, the BRPs have started their formal processes with the business to take any critical decisions required, as provided for in terms of the Companies Act, to address the liquidity requirements,” the firm adds.

“The company and the BRPs are committed to finding solutions as they understand how challenging the current conditions are for creditors.”

The company did however note that the business rescue practitioners are scheduled to meet with employee representatives as well as creditors on Tuesday, 8 November.

Tongaat’s woes

The once celebrated 130-year-old company has in recent years been embroiled in a number of challenges, one of which being an accounting scandal where it is alleged that previous management may have misrepresented the company’s financials.

Read:
Tongaat Hulett confirms civil claims totalling R450m against implicated former executives
Damning Tongaat Hulett forensic report fingers ex-executives, including Peter Staude

As a result of this, as well as reported operational inefficiencies at some of its plants, the group was sitting with a debt of over R11.7 billion on its balance sheet before 2019 – a debt that it has since cut down by R6.6 billion under new leadership. Tongaat also has a working capital shortfall of R1.5 billion.

According to a note to the market on Thursday, the group said at least 87% of its residual debts is carried by the cashflows of the South African sugar operations, the property business and dividends and operational support fees received from its non-South African sugar operations.

Things seemed to be looking up recently when the company began putting into motion a debt restructuring plan. In September, it had secured a R600 million short-term base facility from a South African lender.

At the time the group was also negotiating to secure a further R750 million from the lender, however recent news shows that those negotiations failed to bear fruit.

Read:
Tongaat Hulett makes progress with its debt restructuring
JSE suspends Tongaat Hulett for second time in three years

No consultation

SA Canegrowers says the sugar industry has obviously been aware of Tongaat’s recent troubles. However, it takes issue with the fact that it was not consulted before the company decided to take the business rescue route.

“As the surrounding mills in the province lack the ability to take on Tongaat Hulett’s deliveries, the decision also has serious short- and long-term implications for the supply of sugar to the local market.”

“SA Canegrowers is also mindful of the potential ramifications of this move on the livelihoods of Tongaat Hulett mill workers and other workers throughout the sugarcane value chain,” the body added.

The association did however note that it will do all it can to engage with the business rescue process, to ensure that growers are given what is due to them.

“In the meantime, urgent action is required to prevent the catastrophic social consequences that will arise if the immediate threat of non-payment materialises over the next few days.”

“We therefore urge all involved, including the business rescue practitioners, the Tongaat Hulett board and executive management, and financial institutions to do everything possible in the circumstances to ensure that payments are made with as little disruption as possible,” they added

Read:
Tongaat Hulett abandons planned R5bn rights offer
Tongaat Hulett chair Louis von Zeuner resigns with immediate effect