Tongaat-Hulett Limited

05/31/2023 | Press release | Distributed by Public on 05/31/2023 08:20

BUSINESS RESCUE UPDATE

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BUSINESS RESCUE UPDATE

31 May 2023

Plans of Tongaat Hulett Limited and its subsidiaries, Voermol Feeds* and Tongaat Hulett Sugar SA*, released today

Key achievements to date

· Growers - Total cane grower claims before business rescue of c.R1 billion paid in full to assist with stability in the industry. All post business rescue supplies of c.R400 million also paid in full

· Unsecured creditors - Payment for goods and services since the commencement of business rescue of c.R3 billion

· Employees - c.2 500 employees remain employed on the same terms and conditions as before business rescue. Monthly salaries and wages bill of c.R110 million (R650 million since commencement of business rescue) has been paid to date

· Off-crop capital expenditure - In excess of R400 million invested during the annual off-crop capital maintenance period between December 2022 and April 2023. This is the most comprehensive maintenance performed in in many years

Post-commencement finance

· When the business entered business rescue in October 2022, the operations were brought to a standstill as there was no free cash available to fund operations or to settle creditors or employees

· In only a few weeks, the business rescue practitioners (BRPs) secured post-commencement finance (PCF) from THL's lender group of c.R900 million to fund short-term working capital requirements. This allowed the South African operations to re-start

· Replacement PCF of c.R1,2 billion was secured from the IDC within two months of entering business rescue. This enabled the completion of the 2022 sugar season and the off-crop programme required to commence the 2023 season. The BRPs are working closely with the IDC in an endeavour to extend the funding arrangements and securing a new strategic equity partner

The business rescue practitioners (BRPs) commented:

A constant factor in our minds in the execution of this business rescue is the enormous social impact of the businesses under our care. It is beyond question that the successful rescue of especially THL's sugar operations in South Africa will save tens of thousands, possibly hundreds of thousands, of direct and indirect jobs.We take this responsibility very seriously and are confident that Tongaat Hulett has a future.

We have made significant progress towards securing a potential strategic equity partner with a view to developing a long-term sustainable business solution. We are also grateful to have been able to stay up to date with grower, unsecured creditor and employee payments. We thank the lender group and the IDC for their support.

The lender group has security over all material assets of THL, except the cash balances, stock and debtors, which the lender group released to the IDC for security of their PCF, over which the lender group has a right to register a reversionary cession.

The BRPs added:

We are cognisant of the effect of non-payment to unsecured creditors. As part of the business rescue plan, we have agreed with the lender group that they will share 15% of their proceeds from the sale of the SA Sugar businesses and/or assets with unsecured creditors. This contribution will be set at a minimum of R45 million and a maximum of R90 million. This will ensure a benefit uplift to unsecured creditors relative to the anticipated liquidation dividend of zero if the company were to be placed in liquidation.

The proceeds will be distributed to unsecured creditors pro-rata to their claims.

Business rescue plan information

The planned actions for the business rescue include:

1. A continued effort to optimise the operations and cost base of the THL businesses and head office - the Operational Restructuring

2. Sell and/or seek investment in all of the sugar-related assets and businesses currently comprising the THL Group, either collectively or individually - the Corporate Restructuring. This is subject to relevant secured creditor consent

Corporate Restructuring

There are several potential purchasers of and/or investors interested in THL and/or its assets and/or its businesses:

· In February 2023, the BRPs started engagements with potential strategic equity partners (SEPs) interested in the acquisition of, or investment in, the whole of THL and/or the SA Sugar businesses and/or parts thereof

· Selected SEPs are required to demonstrate the following criteria:

o interest in THL as a whole or in SA Sugar

o technical expertise and operational ability

o balance sheet strength and substantial access to funding

o a plausible business case being presented for the future of the THL or SA Sugar business

o valuation of the relevant assets that demonstrates a likely ability to conclude a transaction

Number of SEPs

Whilst a substantial number of potential SEPs were initially considered, this has been narrowed down to eight potential SEPs. They are well advanced in their due diligence processes, which are expected to conclude around the end of May 2023. Final offers are expected to be received during June 2023.

Potential outcomes

There are various corporate restructuring outcomes. One or more SEPs (either with or without participation by IDC) may:

· acquire all of THL's sugar assets and businesses (probably with the exclusion of certain liabilities)

· acquire only the core SA Sugar businesses, leaving the African assets to be disposed of separately

· acquire specific assets or businesses; or

· a combination or permutation of the above

If there are any unsold and/or excluded assets, the BRPs will seek purchasers through controlled, accelerated sale processes.

Creditors will vote on the business rescue plans on 14 June 2023.

Notes to editors

*Voermol and THSSA

The current THL group structure comprises of c.75 subsidiaries and associated companies. However, many of the South African and Zimbabwean companies are dormant. Certain of the legal entities trade as divisions of the Company pursuant to Agency Agreements that were entered into in the 1980s and which are in the process of being unwound.

  • The most relevant of the Agency Agreements are those in relation to THSSA and Voermol. THSSA and Voermol do not conduct any activities for their own benefit that would generate revenue for themselves and are wholly financially dependent on THL. THL's SA Sugar division is operated by the Company and pursuant to appropriate Agency Agreements between the Company and THSSA and THSSA and Voermol. As a result, the business rescue proceedings of Voermol and THSSA are wholly dependent on the business rescue proceedings and business rescue plan of THL