Tongaat sells starch business for R5bn
This comes as the group last year dodged a bullet after trading in its shares was suspended at the height of accounting irregularities, resulting in inflated asset and profit values.
Trading in its shares was lifted in February with the restatement of the group’s September 2018 results.
Tongaat on Friday afternoon issued a notice to shareholders indicating that the starch business would be sold to KLL Group, a wholly owned subsidiary of Barloworld.
Its starch business, established in 1919, is one of the largest wet millers in sub-Saharan Africa and operates four plants located at Germiston, Kliprivier and Meyerton in Johannesburg, and Bellville, producing modified and unmodified starch, as well as a powdered glucose and agri-products. The mills have a capacity to process more than 850000 tons of maize a year.
“Tongaat has undertaken to its funders to reduce its debt levels by R8.1bn by March 2021 in line with the debt reduction plan. Management and the board have initiated various processes, including implementing greater operational efficiencies to improve the group’s cash flow considering potential non-core and core asset disposals and considering potential equity capital raising initiatives,” it said in a stock exchange announcement.
In terms of the agreement, all jobs in the starch business will be retained, with the transfer of employee’s conditions of service to remain intact, the group said.
Group chief executive Gavin Hudson said Tongaat had already met and exceeded the first debt repayment milestone agreed with its lenders.
He said the group is considering a number of options for reducing its debt, apart from selling non-core and core assets. The other options include accelerating operational efficiencies, and a potential strategic equity capital raising initiative.
“The sale of the starch business will allow us to make excellent progress on paying down our debt, and that in turn will give us breathing room and free us up to put measures in place to grow the business. The sale positions us for longer-term sustainability and value creation for our shareholders,” Hudson said.
According to the group’s interim results for the six months ended September 2019, the division’s operating profit was R306 million.
The group last year named key executives identified by a forensic audit to be responsible for financial mismanagement, and initiated action to claw back the performance bonuses paid to them.
Chief executive Peter Staude - one of those named - resigned days before the annual general meeting last year and experienced businessman Hudson was brought in to right the sinking ship.
More than 5000 jobs were cut as Hudson declared that the company would no longer be focused on sugar production.
“Disposals will be considered at the right price and right time. We are focused, but in no hurry,” Hudson said.
The transaction is subject to shareholder approval.