Tongaat defies small investors on R4bn rights issue

They object to the influence that may be enjoyed by the Mauritian company represented by Zimbabwean Hamish Rudland that is underwriting half the deal.
The capital raise is for more than four times Tongaat’s market value. Image: Shutterstock

Tongaat Hulett has won approval for a R4 billion ($259 million) rights issue to help keep the South African sugar maker afloat, in defiance of small investors who said the move hands too much power to a little-known new backer.

The 132-year-old company secured the required support for the discounted fundraising after a stormy two-hour online meeting on Tuesday, at which several minority shareholders spoke out against the deal.

They object to the influence that may be enjoyed by Magister Investments Ltd, a Mauritian company represented by Zimbabwean Hamish Rudland that is underwriting half the deal.

Investors representing more than 20% of the stock voted against the plan.

Activist investor David Woollam demanded that Tongaat’s board and management show which of Magister’s investments would support it being a strategic shareholder.

Read: Tongaat Hulett secures shareholder approval for controversial rights offer

“I find it extraordinary that a company which is about to take control of Tongaat, we know nothing about, or no one is prepared to talk about,” Woollam said.

Tongaat is “going to have to make this price very, very low,” he added.

“And what that’s going to do, quite simply, is destroy and completely dilute the vast majority of shareholders.”

Tongaat is raising the cash to bolster the balance sheet following a 2019 accounting scandal that forced the Durban-based firm to restate its financials. The company has said the rights offer – for more than four times Tongaat’s market value – may help avoid the forced sale of plantations and other property.

Not family 

Magister is an investment company that has holdings in both publicly listed and private companies, Rudland said last month in response to questions sent by Bloomberg. The firm is not part of his family business, one of Zimbabwe’s large corporate dynasties, and not invested in gold and tobacco, he said.

“Magister believes in the trajectory of the turnaround strategy being implemented under the current board of directors and management,” he said. “Once the debt is reduced to a sustainable level, Tongaat would be in a position to capitalise on market opportunities.”

The vote suggests the rights issue was backed by two major money managers, the Public Investment Corporation (PIC), which has an almost 14% stake in Tongaat, and PSG Group.

Seeking compensation 

Tongaat is seeking to claw back R450 million from past directors and executives for allegedly inflating profits and the value of certain assets, while civil trials against the former managers are expected to start in 2023.

The sugar producer will also seek compensation from Deloitte LLP after the auditor signed off on what turned out to be bogus accounts, chair Louis von Zeuner said at the meeting.

Standard Bank Group, Africa’s biggest lender, is backing Magister. Von Zeuner said Tongaat has been reasured by the bank’s anti-money laundering checks.

Tongaat’s shares dropped as much as 8.8% after the vote and were trading 3.1% lower as at 13:17 in Johannesburg. That brings the slump since the rights offer announcement to 28%.

© 2022 Bloomberg

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