Despite Tongaat Hulett’s debt burden now sitting at R11 billion and its equity being reduced by almost R11.9 billion, the group’s finance chief and board maintain that the KZN-based sugar and property company is “still a going concern”.
Speaking on Tuesday during a presentation on the group’s delayed 2019 financial results, for the full-year to March, Tongaat Hulett CFO Rob Aitken said: “The clear statement as the board is that there is no intention to cease trading or not to continue as a going concern, and that is explicit.”
His comments were aimed at addressing concerns in the market around Tongaat Hulett’s liquidity and its ability to pay-off its debt, following the group having to restate its 2018 financial results.
The restatement, also released on Tuesday, showed that the group had to reduce its equity by almost R11.9 billion. This was much higher than its initial estimates in May that it would need to reduce its equity by between R3.5 billion to R4.5 billion.
Aitken is part of the new executive management team at Tongaat Hulett, together with CEO Gavin Hudson, who took over the hot seat in February. Supported by an overhauled board with Louis von Zeuner as chairman, the new leadership has been tasked with turning around the embattled group, following revelations of questionable accounting practices and governance failures under several of the group’s former executives.
Aitken stressed that following rigorous assessments by the board, the group is confident of its ability “to discharge its liabilities over the foreseeable future”.
In a more detailed explanation in its results presentation, Tongaat Hulett further noted: “The board is of the view that given the significant headroom in the fair value of the assets over the fair value of the liabilities, the group and company are solvent as at 31 March 2019 and at the date of this report.”
It added: “The ability of the entities to repay debt as it becomes due is dependent on the timing and quantum of cash flows from operations; the ability to realise cash through a combination of disposals of core or non-core assets or part thereof; and, the successful raising of equity…. The board remains focused on, and committed to, the turnaround strategy and repayment of debt.”
During the presentation, Hudson highlighted how Tongaat Hulett plans to reduce its debt by some R8.1 billion by March 2021. This included:
- Internal ‘self-help’ savings of up to R3 billion through reducing capex and other costs, such as reducing its workforce across its Southern African operations by up to 8 000 people
- Strategic business partnerships in its sugar milling and property development divisions, which will involve selling equity stakes to raise between R1 billion and R2 billion
- Raising up to R4 billion in new shareholder equity through a capital raise on the JSE, and
- Through asset disposals of both some core and non-core assets, such as the recent sale of its Namibian sugar business for R220 million.
The planned capital raise would mean that the suspension of trade in Tongaat Hulett shares on the JSE would need to be lifted sometime in the new year. However, the group said this decision would need to be made by the JSE at an appropriate time.
With Tongaat Hulett’s share price plummeting to a multi-decade low of R13.21 when trading was suspended on June 10, some of its shareholders have raised concerns that the proposed capital raise will further dilute their shareholding in the group. This includes PSG, with one of its asset managers pointing this out at the results presentation on Tuesday.