Tongaat Hulett provisional liquidation: IDC non-committal about additional support

The Industrial Development Corporation (IDC) is non-committal on whether it will provide additional financial support to the financially embattled sugar group and former land developer Tongaat Hulett.

The corporation said this on Friday in response to Tongaat’s business rescue practitioners (BRPs) confirming on 12 February that “after exhausting all reasonable endeavours” they had applied to the KwaZulu-Natal (KZN) division of the high court for an order to discontinue the rescue proceedings and place Tongaat into provisional liquidation.

The Department of Trade, Industry and Competition (dtic) also announced on Friday that it, along with other unnamed “organs of state”, will oppose the planned provisional liquidation of Tongaat.

The dtic said it will “continue to support all lawful efforts aimed at finding a viable and durable resolution”.

Former rival bidder for Tongaat, Mozambican-based RGS Group Holdings, which previously launched an unsuccessful high court application to have Tongaat’s business plan declared unlawful, has reportedly also given notice it will join the court case to oppose the liquidation, although this has not been confirmed by Moneyweb.

Position on further funding

The IDC said on Friday that it is currently not in a position at this stage to commit to, or speculate on, additional financial support for Tongaat.

It stressed that any consideration of further funding would, as always, be subject to rigorous assessment in line with the IDC’s developmental mandate, fiduciary responsibilities, and the protection of public funds, as well as clarity on the legal and commercial framework emerging from the current court processes.

But the IDC said it remains committed to engaging with government and sector stakeholders and supports all lawful efforts aimed at finding a sustainable resolution that protects jobs, preserves productive capacity, and serves the broader public interest.

Tongaat’s BRPs said the decision to apply for the provision liquidation of Tongaat followed the business rescue plan no longer being implementable after the lapse of sale agreements with the Vision Group.

Warnings of ‘cascading economic consequences’

This led SA Canegrowers to warn – in a letter sent last week to President Cyril Ramaphosa, Minister of Finance Enoch Godongwana, Minister of Trade, Industry and Competition Parks Tau, Minister of Agriculture John Steenhuisen and Minister Public Works and Infrastructure Dean Macpherson – that what may appear to be a contained corporate failure would, in reality, “trigger dire cascading economic consequences across KwaZulu-Natal, Mpumalanga and the national food and beverage system”.

Listen/read: Repositioning SA’s sugar industry: Lessons from India and Brazil

SA Canegrowers represents South Africa’s 27 000 small-scale growers and 1 100 large-scale growers.

The dtic said on Friday government will intensify its engagements with all stakeholders – including the IDC, labour, growers, financiers, investors and affected communities – to explore solutions that ensure the company’s survival and the long-term sustainability of the sugar sector.

The department said these engagements are guided by government’s broader policy objectives of:

• Protecting jobs and livelihoods, particularly in rural and peri-urban areas;
• Safeguarding small-scale and emerging farmers who depend on the sugar value chain;
• Preserving industrial and agricultural capacity critical to food security and regional economies; and
• Ensuring accountability, transparency and good governance in all processes.

The dtic added that Tau is acutely aware that the sugar industry remains under pressure due to difficult trading conditions, both domestically and internationally.

Read: Tongaat Hulett appoints Gavin Dalgleish as CEO

It said Tongaat is a systemically important player in South Africa’s sugar value chain, and that the liquidation of the company would have far-reaching and devastating consequences for the sugar sector, particularly in KZN, where the industry underpins thousands of jobs, small-scale farming livelihoods, rural economies and related downstream industries.

“The collapse of this ecosystem would deepen economic distress in already vulnerable communities and undermine years of investment in transformation, industrial capability and agricultural development.

“Government remains firmly of the view that liquidation should be a measure of last resort, particularly where there are reasonable prospects of rescuing a strategically important enterprise in a manner that protects jobs, sustains productive capacity and preserves value for the broader economy.

“In this context, the dtic believes that Tongaat Hulett remains capable of being stabilised and restructured through a sustainable solution that balances the interests of workers, growers, communities, creditors and the country,” it said.

Business rescue and financial distress

The IDC added on Friday that, since October 2022, it has worked consistently and in good faith with the BRPs, Tongaat management, shareholders, lenders and government stakeholders to support business continuity and pursue a viable, going‑concern outcome.

Read: Urgent bid to halt implementation of Tongaat Hulett rescue plan dismissed

“During this time, the IDC provided significant post-commencement funding to ensure the continuation of operations, support the business rescue process, and safeguard jobs, growers, and the broader sugar value chain.

“It is important to emphasise that the decision to initiate liquidation was taken by the BRPs following developments beyond the IDC’s control, including the failure to extend key sale and purchase agreements that were central to the business rescue process,” it said.

Read: Tongaat shareholders vote against debt-for-equity swap

The provisional liquidation application for Tongaat is set to be heard on Friday (27 February).

Tongaat entered business rescue in October 2022 following severe historic accounting irregularities, financial misstatements and governance failures under former senior management, which resulted in about R12 billion in shareholder value being destroyed and the company’s balance sheet, credibility and access to funding being severely impaired.