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Tongaat seeks new chapter with equity raise, debt restructure

Plans to lower debt by R8.1bn and cut 8 000 jobs.

Tongaat will approach shareholders to raise R4 billion in equity, sell assets and reduce its headcount in order to lower debt, after writedowns at the South African sugar producer surged to $802 million.

Tongaat, which operates in six Southern African countries and processes sugarcane and maize, issued a much delayed earnings report for the year to March 31, 2019 on Tuesday that revealed the impact of accounting fraud and corporate governance failures.

It also restated 2018 figures, raising writedowns to R11.9 billion from an earlier figure of R3.5-4.5 billion and slashing operating profit to R142 million from an initially reported R29.115 billion.

The company appointed a new chief executive in February, Gavin Hudson, who initiated a review that revealed certain accounting practices that needed to be re-examined and which looked at how to lower high levels of debt.

Tongaat said on Tuesday it has restructured its debt in South Africa and negotiated a debt standstill agreement with its lenders in Mozambique until December 31 2020.

The firm aims to cut debt to a minimum of R8.1 billion by September 2021, from R11.44 billion as of end-March.

“The closure of this chapter will free up management to focus on delivering on our strategy and begin to build a sustainable and long-term future,” Hudson said.

The company said cost efficiencies, working capital improvement, interest savings and reduced capex would improve cash flow by R3 billion.

It added strategic partnerships related to milling and property would yield another R1-2 billion and it would dispose of assets.

“Literally nothing is off the table,” Hudson said at the results presentation, adding however, it was more difficult to sell Tongaat’s assets in Zimbabwe.

The firm also wants to shed 8 000 jobs, 70% of which have already gone.

While Tongaat said it faces “liquidity uncertainty,” it does not plan to curtail operations or liquidate businesses.

In November, PwC found that certain senior executives at Tongaat had overstated profits and certain assets by using “undesirable” accounting practices.

Tongaat said its net asset value had fallen to negative R2.972 billion in 2019 from a value of R62 million a year earlier.

Operationally Tongaat saw a narrower headline loss per share in 2019 than a year earlier – 823 cents versus 861 cents in its restated 2018 figures.

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Maybe the 8 000 to be shed could institute a class action against the senior executives involved in the “undesirable accounting practices”. Just a thought.

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