Sugar producer and major property owner Tongaat Hulett saw its share price tank over 20% around midday on Wednesday after the group announced plans for a capital raise on the JSE.
The stock initially tanked almost 33% on the news.
Tongaat Hulett noted in a Sens statement that the rights offer of “up to R4 billion” is in “order to achieve a further reduction in debt to a sustainable level, and [is] in line with the debt refinance
currently being finalised” with its South African lenders.
In a separate media statement, the group said the exact pricing of the rights offer is yet to be determined.
It says the “proposed major recapitalisation via a rights offer of new shares” will be partially underwritten by Mauritian-based Magister Investments Limited, a shareholder and strategic partner of the group.
“Magister will partially underwrite the rights offer up to a maximum of R2 billion, provided that its total shareholding in Tongaat does not exceed 60% immediately following implementation of the rights offer and the underwrite,” KwaZulu-Natal-based Tongaat Hulett notes.
“The timing to complete the proposed equity raise is dependent upon when the required shareholder, lender and regulatory approvals are obtained, but is expected to be Q1 calendar year 2022,” it says.
“Magister is an investment holding company incorporated in the Republic of Mauritius and focuses on long-term investments in agriculture, logistics and other sectors across Southern Africa. Magister is also invested in Agriterra Limited, an AIM-listed company in London,” it adds.
The group says the proposed equity funding is set to bolster both Tongaat Hulett’s “investment proposition, and its socioeconomic legacy across Southern Africa”.
“The proceeds from the rights offer will be used to sustainably reposition the group and help secure the future of its approximately 29 000 [at peak harvest season] employees in operations across South Africa, Zimbabwe, Mozambique, and Botswana,” it explains.
“The company’s management team has progressed a turnaround strategy over the past two-and-a-half years, positioning the group for future growth by improving governance and operational efficiency, reducing debt, and driving cash flow.”
“During this time, Tongaat has achieved a 42% reduction in debt levels through asset disposals, cashflow management and cost reductions. A successful rights offer will further reduce debt significantly, allowing management to focus on repositioning the business for long-term growth,” the group adds.
Tongaat Hulett’s two primary focus areas are sugar and property, following the sale of its starch business to JSE-listed Barloworld last year.
“The core strategy is delivering cost leadership as a sugar producer, predominantly focused on South Africa, Zimbabwe and Mozambique, and capitalising on the sizeable portfolio of premier commercial properties,” it says.
Meanwhile, Tongaat Hulett points out that the company is exploring potential for (further) property disposals to further reduce debt.
It says that this “will provide additional cash flow in the longer term”. However, the group is also looking at the “potential for co-investment with developers to create sustainable revenue sources”.