Tongaat-Hulett, under fire from a group of minority shareholders on its plans for a highly dilutive R5 billion rights issue which it requires to alleviate its debt burden, has rejected a R3.2bn offer for its Mozambique sugar operations.
It emerged yesterday from Mozambican news sources that US-based Lusitania Investment Capital was in “negotiations” with Tongaat about a $220 million (about R3.2bn) that the US group had offered for the assets, including the agricultural and industrial assets in Xinavane and Mafambisse. Tongaat is Mozambique’s biggest private-sector employer.
Tongaat has accumulated debt of some R6.8bn, but a R5bn rights issue to recapitalise was dealt a blow by the recent ruling of the Takeover Regulation Panel (TRP) to remove an exemption for Magister, the rights issue underwriter that is owned by the controversial Zimbabwean Rudland family, to make a mandatory offer to minorities should their shareholding exceed 35 percent after the rights issue.
According to reports, Magister has since indicated that it is not averse to a mandatory offer to minorities should it be required. A group of minority shareholders view Magister’s positioning for Tongaat as unacceptable, given the findings of the TRC, and they are also opposed to the rights issue, which they believe will be highly dilutive for shareholders, who have already lost considerable wealth in the group.
Tongaat said in response to queries about the Lusitania offer that no businesses had been sold in that country and it remained “firmly business as usual for all the company’s operations in that country”.
It said that while it was not able to provide any details of any party that approached the group, “we can confirm that a party did approach us in this regard with an initial and exploratory non-binding expression of interest”.
“Due to the rights offer process, and that this party’s interest was to acquire assets, we could not pursue any further talks,” Tongaat said.
The group said it remained of the view that a capital raise was a better alternative to strategic asset disposals, and that additionally an accelerated asset disposal programme was unlikely to realise full value for the assets.
Opportune Investments chief investment officer Chris Logan said the sale of the Mozambican operations might have removed the need for the group to embark on a rights issue, and would provide investors with an opportunity to recover some value after losing most of their investment in Tongaat.
He said the problem at Tongaat was that its board “have no skin in the game” and this was why they were happy to “crush their existing shareholders with a highly dilutive rights issue using highly questionable financiers”. He said also the failure to consider the Lusitania offer smacked of the former chief executive’s “take it or leave it attitude”.
Tongaat’s Mozambique operations accounted for only R230m of Tongaat’s R1.82bn operating profit in its 2021 financial year, a figure that had grown strongly from R124m in the 2020 financial year.
The business comprises two sugar mills, Mafambisse and Xinavane, and the sugar estates surrounding them and a state-of-the-art sugar refinery capable of producing some 90 000 tons a year of European Union exportable grade sugar.