TONGAAT Hulett management should delay their proposed highly dilutive rights issue as there was more at stake at the group than just solving its over-indebted situation, Harry Smit, from Retail Active Shareholder Holdings, said yesterday.
Southern Africa’s biggest super producer has proposed a rights issue of up to R4 billion, and shareholders will vote at a general meeting on January 18 to proceed or not with the rights issue.
Smit, who last year assembled enough shareholder support to change the board and effect changes at ailing Ascendis Health, said he already had the support of some shareholders, including Artemis Investments, a major shareholder in Tongaat with an 8.3 percent shareholding.
He said the rights issue, the holding of which, and further asset disposals, is a condition of a debt refinancing agreement, would dilute existing shareholdings by about seven times. It might also result in a change of control of the group to Mauritius-domiciled Magister Investments, which is owned by the Rudland family in Zimbabwe.
Magister has underwritten a minimum of R2bn of the rights issue.
Smit said Tongaat’s lenders were South African institutions, and considering the wider impact a collapse of Tongaat would bring about in this country, considering the farmers, rural communities and other stakeholders in the sugar industry value chain, they might be inclined to exercise a little more forbearance on Tongaat’s debt covenants.
Tongaat Hulett this week filed a R450 million civil claim against some of its former executives following an almost R12bn overstatement of its financial statements by some senior executives over a period of more than seven years, that was first disclosed in 2019.
Smit questioned why the company has also not filed legal proceedings against accounting firm Deloitte, which had signed off the company financial statements over the years of the fraud, and he said these settlements could go a long way to restoring the group to solvency.
Smit also questioned why the rights issue was being held in the early part of the year where it was less likely to succeed, and following a six-month period where Tongaat’s operations were severely affected by the civil unrest last July, and there was significant value destruction at the group over the period.
South Africa’s biggest sugar producer and still the largest private-sector employer in Mozambique and Zimbabwe, Tongaat has lost more than 90 percent of its market value following its disclosures in 2019. Its market capitalisation was only R476m yesterday afternoon.
In the six months to September 31, Tongaat reported a headline loss of R254m compared with earnings of R59m in the same period in 2020, after the civil unrest in KwaZulu-Natal wiped R158m off the bottom line in the South African businesses.
Analyst David Woollam told media this week that the release of the interim results just before Christmas gave very little time for engagement with shareholders for what now appeared to be a reverse takeover.