Tongaat Hulett plans a rights offer, partially underwritten by shareholder and strategic partner Magister Investments to up to R2 billion, to put the sugar and property group on a sustainable trajectory through its turnaround process. Photo: Supplied
Tongaat Hulett plans a rights offer, partially underwritten by shareholder and strategic partner Magister Investments to up to R2 billion, to put the sugar and property group on a sustainable trajectory through its turnaround process. Photo: Supplied

Tongaat Hulett share price plunges after announcing plans for a rights issue

By Edward West Time of article published Nov 18, 2021

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TONGAAT Hulett plans a rights offer, partially underwritten by shareholder and strategic partner Magister Investments to up to R2 billion, to put the sugar and property group on a sustainable trajectory through its turnaround process.

However, the proposal to issue shares for cash did not appear to be met favourably by shareholders, and the share price fell a whopping 23.7 percent to R7.40 by late yesterday afternoon.

The share price is still low, considering it traded at around R65 three years ago, prior to governance and accounting irregularities that forced new management to implement a turnaround process at the group.

The amount of equity capital to be raised and the pricing of the rights offer was yet to be determined, but was expected to allow Tongaat to reduce debt to sustainable levels, a statement from the company said yesterday.

Magister would partially underwrite the rights offer, provided its shareholding in Tongaat did not exceed 60 percent immediately after the rights offer and the underwrite.

Tongaat produces about 43 percent of South Africa’s sugar. It said the funds would be used to sustainably reposition the group and help secure the future of its about 29 000 (at peak harvest season) employees in South Africa, Zimbabwe, Mozambique and Botswana.

The company has been the subject of a turnaround strategy over the past two-and-a-half years, repositioning it for future growth by improving governance and operational efficiency, reducing debt, and driving cash flow.

During this time, Tongaat had already managed to reduce debt by 42 percent through asset disposals, better cash-flow management and cost reductions.

“A large rights offer, incorporating Magister’s underwriting commitment, is a key step to secure the future of Tongaat Hulett. We look forward to it contributing to a market value of the company which is more reflective of the underlying value of the group’s various components,” said chief executive Gavin Hudson.

He said the rights offer represented a “once-off” opportunity to reduce debt significantly and advance the goal of creating a sustainable capital structure, unlocking value, and making Tongaat an attractive investment option.

“We believe keeping the group intact provides the most compelling value proposition for all our stakeholders. Through the proposed recapitalisation, the group retains exposure to strong, well-invested sugar businesses in Zimbabwe, Botswana and Mozambique, and continued gains under the Sugar Master Plan for our recovering SA business,” he said.

Tongaat’s strategy was to deliver cost leadership as a sugar producer, predominantly focused on South Africa, Zimbabwe and Mozambique, and to capitalise on its sizeable portfolio of premier commercial properties.

The potential for property disposals

to reduce debt further was being explored as was the potential for coinvestment with developers to create sustainable revenue sources.

The timing to complete the proposed equity raise is dependent on when shareholder, lender and regulatory approvals are obtained, but this is expected to be in the first quarter of the 2022 calendar year. Magister is an investment holding

company in Mauritius and focuses on long-term investments in agriculture, logistics and other sectors across Southern Africa.

Tongaat said the introduction of Magister would add impetus to Tongaat’s turnaround strategy and advance the objective of creating value for shareholders and Tongaat’s other diverse stakeholders across Southern Africa.

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BUSINESS REPORT ONLINE

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