Harry Smit, from Retail Active Shareholder Holdings, said yesterday that Tongaat Hulett’s shareholders were likely to face a massive dilution of up to two-thirds their share value through the sugar and property groups’ proposed rights issue of up to R4 billion.
Smit, who recently managed to assemble enough shareholder support to prevent a potentially dilutive rights issue at Ascendis Health, said Tongaat, like Ascendis, had a large number of small shareholders, “guys with 500 to 600 shares”.
He said the dilution, depending on the share ratio’s of the rights issue, would be of such magnitude, it would likely prevent minority shareholders from being able to follow their rights in the capital raise, not to mention the value dilution. Tongaat’s market capitalisation stood at R767.4m yesterday morning.
Artemis Investments, a major shareholder in Tongaat with an 8.3 percent shareholding, has offered its backing to a group of minority investors, including Smit, who are upset with the timing and size of a rights offer which South Africa's top sugar producer announced last month.
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 disclosure in 2019 that it overstated its revenue, profits and assets in previous years.
New management has reduced its debt, and on Tuesday a debt refinancing agreement with lenders was announced. However, the group is today, Thursday, expected to report a headline loss of between R249 million and R220m for the 12 months to September, when its results are released, and when further details of the rights issue are announced. Some R2bn of its debt also falls due next year.
Smit said minority shareholders had not been given enough information and there was a lack of transparency for them to make an informed decision on the rights issue.
For instance, Tongaat said shareholders holding 38 percent of the shares had already agreed to the rights issue, but these shareholders must then have been made aware of the terms, and the exact amount to be raised, while minorities had not been approached.
Smit said there were many other questions that the company had not answered, such as why no attempt was being made to recover funds from Deloitte, which had been Tongaat’s auditing firm for more than 15 years when it announced its accounting irregularities, as had been the case with the Steinhoff corporate disaster.
In addition, why had there been updates on legal proceeds relating to these accounting irregularities, said Smit.
Smit said “while it is early days”, shareholders would seek to reach a total equity stake of 10 percent in Tongaat and gradually increase it.
A 10 percent stake would give him backing to reach out and persuade other shareholders to vote against the rights offer, he said.
Last month Tongaat's share price slid by a quarter after it announced the rights offer, indicating substantial investor unhappiness about the rights issue.
The rights offer, if successful, could mean that Mauritius-based Magister Investments, which had unwritten R2bn of the rights issue, would effectively control Tongaat. Magister focuses on long-term agriculture investments.
BUSINESS REPORT ONLINE