WHEN Tongaat Hulett’s creditors voted overwhelmingly in favour of the Vision Group’s business rescue plan on January 11, there was no alternative plan on the table after RGS Holdings withdrew a day before the vote, claiming the process had been rigged.
The prolonged business rescue process is bleeding other players in the industry and funders. Even the Industrial Development Corporation (IDC) which stepped in in December 2022 with “post-commencement finance” is losing its patience. In December 2023 the IDC threatened to pull back after contributing R2.3 billion in business rescue funding.
The IDC backtracked on its move to file court papers demanding the immediate payment of funding if a vote to approve or reject the business rescue plans was not taken timeously.
The IDC’s funding helped Tongaat to avoid going into liquidation and also ensured that Tongaat could pay canegrowers and others. In an interview with ENCA on January 15, Chairperson of the SA Canegrowers Association, Andrew Russell expressed optimism about the Vision Group’s stated commitment to the industry, but highlighted concerns about the lack of clarity regarding the payment of Tongaat’s outstanding industry obligations.
Referring to payments to canegrowers, Russell said: “I’m very pleased to report that those [outstanding] payments were actually made although not on time and that since January 2023 right through to the current time all payments to growers for cane deliver to Tongaat Hulett mills have been paid timeously and in full.
“Our real concern is the R900 million that Tongaat Hulett is in arrears with regards to payments to the South African Sugar Association because as Growers we had to make that up. But we’re hopeful of being paid that back.”
The dispute has been taken to court as the business rescue practitioners argue that the payments are ‘contractual’ and justly suspended while others argue that they are ‘statutory’ and therefore an indisputable obligation.
SA Canegrowers said that the Vision Group has yet to commit to payment of the outstanding levies before any appeals of the declarator order have been exhausted, leaving open the possibility of further costly and time-consuming litigation.
Coughing up for a competitor
Tongaat Hulett’s sugar business was a major contributor to a collective funding system that forces paying members to chip in if another member defaults.
In May 2023, RCL Foods which is coughing up for some of Tongaat’s non-payment, provides a brief explanation of the industry’s structure to illustrate why these concerns can’t be taken lightly. In terms of the South African Sugar Act and its related Sugar Industry Agreement, the South African Sugar Association (SASA) governs the partnership between growers (South African Cane Growers Association and South African Farmers Development Association), and millers (SA Sugar Millers Association). SASA supports the industry through a range of specialist services including Cane Testing, Pest and Disease Control and Marketing; it operates the Sugar Port Terminals, the South African Sugarcane Research Institute (SASRI) and the Shukela Training Centre; and it funds Sugar Master Plan costs and small-scale grower initiatives which the industry has collectively committed to supporting.
According to the Sugar Industry Agreement, all proceeds from sugar and molasses sales are pooled and then equitably distributed among growers and millers according to a ratio. This is achieved through a carefully balanced system of levies and proceeds redistribution, administered by SASA. Where a miller fails to pay amounts due to SASA, the Association still has a statutory obligation to continue to fulfil its legislated duties to both millers and growers. The outstanding amounts therefore become a cost to all other compliant millers and growers, RCL explained.
Looking ahead
Russell said that it’s difficult to comment on the Vision Group’s plan at this time. “We are reassured by the fact that the Vision Group um is a successful business operation within South Africa, so they understand the playing field they understand the South African context. What I can say is that since going into business rescue, the Tongaat Hulett operations have been run very effectively. They have been receiving the necessary funding to maintain their equipment and to retain their quality staff and their mills have performed a lot better in the last year and a half under business rescue than they had performed before.”
Russell said that, although it’s mentioned that the demise of the Tongaat Hulett Group was primarily because of irregular accounting practices, there were also concerns about the way that the company’s mills and refinery were run. He said: “There has been a significant improvement in that regard. “So while I may sound optimistic I’m cautiously hopeful. This is where we sit at the moment and we’re certainly looking forward to restoring stability to our industry which we can’t do until these mills are out of business rescue,” Russell told ENCA.
New CEO starts in March
On January 18, Tongaat Hulett announced the appointment of the company’s current chief financial officer Rob Aitken, as interim CEO starting in March 2024. Aitken will take over from current interim CEO Dan Marokane, who is moving into the CEO position at Eskom.
The business rescue process – Tongaat Sugar
According to the BRPs, the business rescue proceedings of Voermol and Tongaat Hulett Sugar SA (THSSA) are wholly dependent on the business rescue proceedings and business rescue plan of Tongaat Hulett Holdings.
An amended business rescue plan for THSSA was published on the group’s website on January 22 and is due to be voted on by creditors on January 31.
