Tongaat Hulett: Decision on mandatory offer to shareholders expected next week

Review hearing of Takeover Regulation Panel exemption granted to the company took place last week.
A ‘tragedy for the South African investment community’, according to one shareholder activist. Image: Supplied

The Takeover Special Committee (TSC) decision on a review of the Takeover Regulation Panel (TRP) granting an exemption to Tongaat Hulett from the obligation to make a mandatory offer to shareholders in the JSE-listed sugar producer and property company is expected to be released next week.

Tongaat Hulett reported on Tuesday that the TCS hearing on the matter was held on February 25 and that a determination is expected to be received on or about March 8.

The company said it will advise Tongaat Hulett shareholders on the TSC’s determination once it has been made.

The review of the TRP exemption was brought by a consortium, which included Artemis Investments.

Tongaat Hulett successfully applied to the TRP for an exemption from the obligation to make a mandatory offer to its shareholders after obtaining shareholder approval at a special general meeting of the resolutions required to implement an equity capital raise of between R2 billion and R4 billion by way of a rights offer.

Read: Tongaat Hulett tanks over 20% after announcing plans for a capital raise

The rights offer will be partially underwritten by up to R2 billion by Mauritian-based Magister Investments Limited, a privately-held group controlled by the Zimbabwe’s billionaire Rudland family.

Shareholder activists, including David Woollam and Chris Logan, have claimed that shareholders did not have sufficient information on the offer and about Magister Investments.

Magister is led by Hamish Rudland, the brother of controversial tobacco tycoon Simon Rudland, who is a shareholder of Gold Leaf Tobacco.

Rights issue details

The final details of the rights issue, including the price, have not yet been finalised.

However, it is anticipated that the rights offer will be extremely dilutive to minority and existing shareholders who do not follow their rights.

About 80% of Tongaat Hulett shareholders voted in favour of a resolution at the special general meeting that allows the company to increase its authorised shares from 150 million shares, of which 135.1 million are currently in issue, to five billion shares by the creation of a further 4.85 billion new authorised shares.

However, Tongaat Hulett stressed in the rights offer circular that this should not be taken as an indication of the number of shares it will issue in the rights offer and the Magister transaction.

“The company will only issue such number of shares as is required to raise the rights offer amount,” it said.

The company also alerted shareholders to the fact that only 6.75 million shares were placed under the control of the board at its annual general meeting in September 2021 and this number will remain unchanged even if not all of the newly created shares are issued under the rights offer and the Magister transaction.

Shareholder dilution

Woollam, an independent analyst as well as a shareholder activist, told Moneyweb earlier this year that Tongaat Hulett is proceeding with the rights issue with the absolute knowledge that the vast majority of shareholders either will not or cannot follow their rights, possibly because of liquidity or because of regulatory limits.

Woollam believes the rights issue price will therefore be low and below R3.

He said this means whoever acquires these shares will get them extremely cheaply for a large percentage of the company.

Woollam added that his real concern is that the rights issue will result in shareholder dilution of about 90% after shareholders have already lost 95% of their value.

“That’s just a tragedy for the South African investment community,” he said.

The rights issue is a last resort by Tongaat Hulett to address the company’s still significant debt burden of about R6.5 billion following the accounting scandal that rocked the group three years ago.

Read:
FSCA fines Tongaat Hulett R20m
JSE fines sugar firm Tongaat
Damning Tongaat Hulett forensic report fingers ex-executives, including Peter Staude

Several former executives have been implicated in alleged fraud and the group was forced to restate its financial results for two prior years.

Criminal charges

The National Prosecuting Authority (NPA) last month charged several former Tongaat Hulett executives and a Deloitte audit partner with fraud following an investigation spanning almost two years into the accounting irregularities at the company.

Tongaat Hulett’s former CEO Peter Staude and Deloitte audit partner Gavin Kruger, who worked on the group’s audit, were two of seven accused who appeared in the Durban Commercial Crimes Court last month in relation to fraud charges totalling R3.5 billion.

Other Tongaat Hulett executives who appeared in court on the fraud charges included former chief financial officer Murray Munro and former Tongaat Hulett Developments MD Michael Deighton, together with Rory Wilkinson, Kamlasagrie Singh and Samantha Shukla.

All seven were granted bail of R30 000 each and the case was postponed to April 11, when it is expected to resume in the high court.

Tongaat Hulett welcomed the developments in the legal process and the progress being made in the case.

The company is also 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.

It has also indicated it will seek compensation from Deloitte after the auditor signed off on what turned out to be bogus accounts.

Shares in Tongaat Hulett rose 7.62% on Tuesday to close at R3.67.

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