Tongaat Hulett’s monthly update to creditors from its business rescue practitioners (BRPs) was a cliff-hanger, warning that liquidity remains tight just one month before the end of its funding lifeline from the Industrial Development Corporation (IDC).
However, the Vision Consortium says plans are in place to address the deadline at the end of September.
Southern Africa’s biggest sugar producer recently narrowly escaped liquidation in April after an eleventh-hour agreement between the Vision Consortium, the IDC and the BRPs allowed its mills to open for the sugar-cane milling season.
The group has been operating under a R2.75 billion post-commencement finance (PCF) facility agreement with the IDC. The facility was extended by three months to 30 September 2026 as part of an agreement to prevent liquidation. Tongaat Hulett entered business rescue in October 2022.
However, the operating environment has been so difficult that the BRPs had to “optimise” cash resources at the end of August by delaying certain cane and supplier payments until month-end debtor collections were received. “Headroom remains under pressure,” the BRPs noted in their August report.
The cash crunch was caused by the impact of an industry-wide strike, which resulted in lower production, continued sugar imports, market pressures, customer hesitancy and supply-side constraints, the BRPs said.
Responding to questions from The National, the BRPs said they continued to closely manage Tongaat Hulett’s liquidity requirements while working to complete the outstanding steps needed to implement the business rescue plan.
“Discussions are ongoing with Vision Sugar and the IDC regarding the funding required through to implementation of the business rescue plan,” the BRPs said.
Similarly, the IDC said: “We do not want to pre-empt our next course of action, as we are still within the time frame to which we committed to concluding our discussions.”
Asked whether the IDC or the Vision Consortium might provide new short-term finance facilities, the BRPs said: “Given the commercial sensitivity of these discussions, we are not in a position to provide further detail at this stage.”
They said Tongaat Hulett continued to trade and generate revenue while they “carefully managed” the company’s liquidity during the business rescue process.
The IDC said: “The outcomes of ongoing discussions will inform IDC’s future funding commitments to Tongaat Hulett.”
Vision Consortium chairman and founder Robert Gumede said however that the parties had anticipated the end-September funding point and have agreed that the existing IDC PCF will be addressed as part of the overall transaction.
He said the June agreement provides for the refinancing or restructuring of the PCF, with the IDC’s funding ultimately being restructured into an equity position within Vision’s operating structure.
“Vision has also committed to providing the funding required to address creditor claims, including the obligations to the South African Sugar Association,” he said.
“Therefore, it should not be understood simply as a case of the IDC funding ending on 30 September with no alternative in place. The parties are working towards a sustainable post-business-rescue capital structure that combines Vision’s investment and funding commitments with the IDC’s participation,” said Gumede.
“There will, of course, be further documentation and definitive agreements required to give effect to the binding heads of agreement and the adopted business rescue plan. These should not necessarily be characterised as a completely new rescue arrangement, but rather as the implementation and formalisation of the agreement already reached,” said Gumede.
The BRPs said: “The immediate focus remains on maintaining operations and successfully implementing the business rescue plan. Various approaches have been made to the government and regulators to assist with preventing deep-sea imports and other regulatory changes aimed at assisting the industry.”
The International Trade Administration Commission of South Africa raised the dollar-based reference price underpinning sugar import tariffs to US$785 a tonne on August 28. This was below the South African Sugar Association’s request for a reference price of US$905 a tonne.
The BRPs said the tariff increase was “unlikely on its own to fully curb imports or reverse the significant volumes already imported into the market”. However, it might in future “help to moderate the flow of low-priced imported sugar into the Southern African Customs Union market, particularly from major exporters such as Brazil”.
Additional measures, including a more responsive tariff-adjustment mechanism and consideration of safeguard measures, might still be necessary to address the structural import challenge facing the industry, the BRPs said.
edward.west@nationalmg.co.za
THE NATIONAL