Sugar Association interdict threatens to delay Tongaat Hulett creditors vote

Friday’s crucial creditors vote on a business rescue plan for troubled sugar giant Tongaat Hulett is set to be delayed again by court action by the South African Sugar Association (Sasa) to secure the R1.5 billion in unpaid industry levies it is owed.

Sasa — which had recently secured a declaratory order against Tongaat Hulett for R1.5 billion in unpaid levies — is going back to court as neither of the two rescue plans to be voted on sufficiently caters for the settlement of the debt.

The Vision consortium, led by ANC funder Robert Gumede, and RGS Sugar, both bid to be the strategic equity partner in the Tongaat business rescue, along with Kagera Sugar, which has since been dropped.

Both have submitted rescue plans which were published last week and are set to be put to the vote on Friday.

While the RGS rescue plan commits to honouring the debts to Sasa and Tongaat’s unsecured creditors, the Vision rescue plan simply offers Sasa and the rest a proportional share of the R75 million it is offering creditors in terms of its rescue plan.

On Monday, after the handing down of a declaratory order compelling Tongaat and business rescue practitioner (BRP) Metis Strategic Advisors to pay the levies, Sasa briefed lawyers to go to court and stop the vote from taking place.

While Sasa executive director Trix Trikam said that the matter was “currently under consideration”, several sources in Sasa and SA Canegrowers, who were part of its earlier court action, said they were seeking an interdict.

Metis declined to comment, while Vision spokesperson Rob Bessinger did not respond to messages from the Mail & Guardian.

In a statement on Tuesday,  SA Canegrowers chairperson Andrew Russell said the association would monitor the situation to see if the BRPs elected to appeal and what they did to accommodate the ruling in the rescue plans.

Russell said the published plans “do not include provisions to pay the more than R1.5 billion that was due to Sasa”.

The levies paid by Tongaat, the country’s largest sugar producer, are essential in sustaining the local sugar industry by ensuring that growers, millers and refiners all profit equitably.

Metis had gone to court to challenge the validity of the agreement, which the court upheld.

Russell said that if the rescue plans were not adapted to accommodate the court ruling,  SA Canegrowers would take action.

“It is our hope that the plans will be revised to accommodate the payment of the industry obligations upheld by the high court. Failure to do so will needlessly prolong what has already been a protracted and costly process for the entire industry and will continue to put thousands of livelihoods at risk,” Russell said.

On Tuesday, the BRPs briefed some of Tongaat’s creditors about the vote being potentially delayed by an interdict by Sasa over the accrued debt, which is made up of Sugar Industry Agreement levies it failed to pay up until March this year.

“There is a possibility of an interdict to stop Friday’s planned vote on the rescue plans,” said a source with intimate knowledge of the process. “The written judgment in the Sasa court case has been received by the BRPs. Metis’ lawyers are considering it and whether they will challenge it.

“There is now no certainty about anything. It looks like there may be a dramatic week ahead,” the source added.

Vision has been in negotiations with the group of banks who hold Tongaat’s R8 billion debt to purchase it at a discount using Public Investment Corporation and Industrial Development Corporation (IDC) funds.

The deal has already been extended once to allow Vision to raise the R3 billion it is offering to buy the debt and it has until the close of business on Wednesday to do so.

If it fails to secure the funding, Vision will be able to present a rescue plan but not to vote on it and influence the outcome.

“The agreement for Vision to purchase the lender group debt is still in place but they have to pay by the close of business tomorrow. So far, they have not paid,” the source said on Tuesday.

“If they do not pay, the Vision rescue plan would still be on the table but they would not have the voting rights to push it through.”

Tongaat Hulett entered voluntary business rescue last November, with the BRPs securing funding from the IDC to keep the company operational while the process was concluded.

It is understood that if Friday’s vote is delayed, there is enough funding to keep the company running over the December pre-season, when Tongaat’s mills and refinery are closed down for maintenance while the sugar cane grows.

“Metis have IDC support for ongoing operations, including off-crop maintenance, secured until the end of February, but who knows what will happen if no plan goes through,” the source said.

Metis announced that voting would take place on the Vision and Kagera rescue plans last week and published both. Creditors were asked to select one to vote on, with 75% required in order to approve the plan. If the selected plan failed to get 75%, the second would then be voted on.

Metis said it had done so because of the strong likelihood of legal action if it failed to allow creditors the option to view both.

“The business rescue of Tongaat Hulett Limited has been bedevilled by numerous   challenges, not least of which has been the ongoing threat and or institution of legal proceedings aimed at inter alia interdicting the business rescue process,” Metis said in notes attached to the rescue plans.

These had been brought by “various groups and or entities with frequently divergent interests, which if not adequately anticipated and or fully dealt with will frustrate and possibly altogether halt the business rescue process, with the almost inevitable consequence of liquidation”.

On Friday, Metis said it had published the two rescue plans by RGS and the Vision parties  “to provide creditors with the best possible outcome”. 

“We are confident that we are presenting fair and balanced business rescue plans under challenging circumstances,’ the firm said.

It described the amended plans as “substantially improved from those put forward by the bidders during the [strategic equity partner] process”, adding: “This will result in improved outcomes for a variety of affected persons, particularly creditors and potentially shareholders.”

Metis said both bids improved the solvency of Tongaat Hulett, improved payments to unsecured creditors and would eventually give existing shareholders a diluted entitlement, rather than none.

According to the rescue plans, Tongaat employs 2 563 workers and created more than 25 000 employment opportunities, with employees earning R850 million during the past financial year.

In its plan, Vision undertook to pay R75 million to unsecured creditors, with its commitments to Sasa included in this figure. It also offered 2.7% of new shares in the company to existing shareholders and promised to inject further working capital in funding from the IDC.

The IDC was not, however, compelled to make this funding available.

In its plan, Vision said that there would be some retrenchments in order to cut costs but that it would attempt to avoid doing so.

RGS offered to buy the R7.7 billion bank debt for R3.6 billion, paid in three instalments, and to inject R500 million in working capital. It also undertook to guarantee all deferred payments to creditors and not to rentrench any workers for the next two years.

It undertook to settle the Sasa debt in full, and to pay creditors owed less than R75 000 100c on the rand. Those with larger claims would be paid 40c on the rand.

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