Resolutions that would have resulted in a debt-for-equity swap at Tongaat Hulett and a significant dilution in value for shareholders in the financially distressed suspended JSE-listed sugar and property developer failed to receive sufficient support to pass at a general meeting on Thursday.
A special resolution to enable the issue of additional Tongaat shares received 48% of votes in favour and 52% against, with 3.78% abstentions.
At least 75% of the votes cast were required to be in favour of the resolution for it to pass.
A general resolution, which was subject to the special resolution being passed by the required majority, sought specific authority from Tongaat shareholders to issue R4.86 billion new but unissued shares in the company to Vision Investments in terms of the Vision Investments business rescue plan for Tongaat. Vision’s business rescue plan was approved at a meeting of creditors on 11 January 2024.
Vision is an entrepreneurial consortium made up of Robert Gumede of Guma Agri, Rute Moyo of Remoggo, Amre Youness of Terris Sugar and Nauman Khan of Almoiz. The implementation of the resolutions, had they been passed at the general meeting, would have resulted in a significant dilution in value for current Tongaat shareholders and them only retaining 2.7% of the shares of the company.
This resolution also failed to pass, with 48% of the votes in favour, 51.99% against and 3.8% abstaining.
Trevor Murgatroyd, a director of Metis Strategic Advisors, Tongaat’s business rescue practitioners (BRP), said after the vote’s outcome was announced that, as a consequence of the special resolution number not being passed, Tongaat is unable to proceed with the transaction contemplated in the circular.
However, Murgatroyd said the adopted business rescue plan remains binding on all parties.
“We will now investigate and commence implementation of the alternative transaction, which is contained in the adopted business rescue plan, which, among other things, includes the sale of assets as a transaction.
“When I say sale of assets, it’s not to break up the group. It is the sale of the group’s assets being the shares in the subsidiaries and the moderations of the sugar business in South Africa.
“The BRPs of Tongaat will keep the shareholders updated in relation to the next steps,” he said.
Storm clouds were gathering ahead of Tongaat shareholder vote on the debt-for-equity swap with Moneyweb reporting that a group of minority shareholders in Tongaat were believed to be planning to vote against the resolutions.
Prior to the vote taking place, Murgatroyd responded to a number of questions and stressed that the view of the BRPs is that the alternative of not approving the resolutions “is far more dire than if the resolution is passed”.
“If the resolution is passed, we have got a road map set out in terms of the business rescue plan that we go and implement and the SASA (SA Sugar Association) escrow funds and creditors get paid … [and] the conversion [of debt to equity] is not formally implemented.
“The alternative is that if we did not vote in favour of this the risks of liquidation increase immensely,” he said.
However, there appears to be a possibility of a legal challenge if the proposed debt-for-asset swap – of all Tongaat assets that are included in the debt package – is to be implemented in the event that shareholders vote against the debt-for-equity swap resolutions.
Contentious debt-asset element
Analyst and investor David Woollam, who is part of a group of Tongaat shareholders who directly own about 20% of the company’s shares, confirmed on Wednesday that he expects legal action if the vote is against the debt-for-equity swap and an attempt is made to implement the debt-asset swap.
“Their view is that they can do that. Our view is that they can’t. We have explored the law very carefully.
“I don’t think they can take the assets. I think there are legal impediments that will get in the way of that,” said Woollam.
“We are not happy with this situation and it’s not about us,” he added.
“I don’t think we will ever get any money back but our last right is that we can exercise our influence to ensure that everybody else in Tongaat has a better chance of getting something back.”
‘Glaring issues’ remain
Agricultural economist Dr Kobus Laubscher said some glaring issues remain with the clock ticking until Tongaat shareholders vote on the pivotal debt-to-equity swap.
Laubscher said Vision has yet to show creditors the money and has already breached the terms of its own plan.
“Any claims that Vision’s debt-to-equity swap offers a ‘substantially better future’ for THL [Tongaat] are completely false.
“Shareholders and the business rescue practitioners (BRPs) must question the plan’s implementability,” he said.
“Additionally, if shareholders reject the conversion, Vision cannot simply seize THL’s [Tongaat’] assets and delist the company as they have claimed.”
Laubscher stressed that it is clearly outlined in the Vision business rescue plan that Vision is first supposed to fully acquire the claims and security of the lender group.
“In the adopted business rescue plan’s own words, Vision’s acquisition of the lender group’s claims was a condition that had to be fulfilled by Vision before it could proceed with the debt-to-equity swap or conversion.
“Without acquiring 100% of the lender group’s claims and security, Vision does not have a legal claim to acquire THL [Tongaat],” he said.
Shareholder activist Chris Logan said unless some shareholders take the matter to court, “Vision is going to have its way”.
Vision confident
However, Vision Investments expressed its confidence this week that “the current long-suffering shareholders” will vote in favour of the debt-for-equity swap resolutions so that Tongaat can remain listed on the JSE and be taken out of business rescue.
“We are looking forward to the vote by the current shareholders on Thursday 8 August as the penultimate milestone ahead of THL [Tongaat] exiting the business rescue process soon,” it said.
“This will provide stability to the industry across the region plus as well as all those whose livelihoods are dependent on a successful THL [Tongaat] and, importantly, finally return to the company to being the preeminent sugar group across the region.”
Two options
Tongaat shareholders have two options in terms of the approved creditors business rescue plan – to vote in favour or against the debt-for-equity swap.
Vision said that should shareholders vote in favour, the current shareholders will retain 2.7% of the JSE-listed shares “of a company that is recapitalised and has a good chance of future growth”.
It added that should the debt-for-equity resolutions not be approved, Vision will have the option of exercising its right in terms of the agreed Vision Plan to conduct a debt-for-asset swap of all Tongaat assets that are included in the debt package, which includes all the assets in the operating businesses in South Africa and all shares in the operating businesses across the other jurisdictions.
“As part of a debt-for-asset swap, Vision will move all the operating businesses on a going-concern basis, assets and employees into new entities in which it will have 100% equity interest with no legacy obligations.
“Current shareholders will receive ‘Zero’ value for their shares as the THL [Tongaat] entity will be wound down/liquidated through the business rescue process.
“Whether shareholders support the proposed resolutions or not, the approved Vision Plan will continue to be implemented and THL [Tongaat] operations will continue in their current guise or under new entities,” it said.
Vision’s ‘milestones’
Vision added that the publishing of the circular on the Tongaat debt-for-equity swap was the fourth milestone since Tongaat was placed in business rescue.
It cited the other milestones achieved as:
- Banks and Vision entering into a full and final debt purchase agreement ahead of the creditors meeting in January this year;
- Approval of the Vision plan at the meeting of all Tongaat creditors in January this year; and
- Recent approval by the Competition Tribunal of the Vision acquisition of Tongaat.
First things first, say shareholders
Woollam said that as a group of shareholders, they have raised their concerns about the way in which the circular was prepared and the order of events that has taken place.
He said the Vision business rescue plan essentially had a number of steps, which when looked at in the right order and in the context, would have taken Tongaat towards something the BRPs felt would meet a successful business plan.
But Woollam said as much as they thought the business plan was poor, “it is both immoral and illegal” to not implement the plan as it is written.
“You can’t change the rules and say it doesn’t matter [and] we will do Step 3 before Step 2 and 1,” he said.
“The order in which things happen is fundamentally important.”
Woollam said it is inappropriate for shareholders to vote on the debt-equity swap until Vision has done its part “to refloat this boat”.
He said this means Vision must first put in the capital, pay off the creditors, put the money aside for the South African Sugar Association (Sasa), renegotiate Tongaat’s working capital loan or to put it in themselves, and recapitalise the company.
“What worries me is that we will end up with the lenders with this debt and then we are really in an almighty mess,” he said.
“We are just insisting that they [Vision] come up with the money, buy the debt, prove that they own the debt and then the rest of the business rescue plan can roll out.”
Moneyweb
