Tongaat shareholder revolt – activist Woollam demands board resign; management be replaced; shares to keep trading

Chartered accountant and former banker turned shareholder activist David Woollam has stopped ‘playing nice’ with Tongaat after years of polite rebuffs. He reckons ‘enough is enough’ after today’s announcement by the company admitting it cannot satisfy auditors that it is a going concern – and as a result cannot produce annual financial results four months after year end. The group of Tongaat shareholders which Woollam represents has also asked the JSE to turn down Tongaat’s request today to suspend trading in the company’s shares. Woollam, who warned directors of the company about problems long before Tongaat’s accounting scandal erupted, is now demanding that the board resign en masse – and suggests a management team it appointed, led by former SABMiller executive Gavin Hudson, fall on their swords. He told Alec Hogg of Biznews this is the only way to save a company which last month belatedly appointed a business rescue practitioner to effect its turnaround.

David Woollam on Tongaat wanting to suspend its shares

It’s another very strange twist in what has been described as a tragic sequence of events for Tongaat going back almost three years. And when I say we, I’ve been working with the group of shareholders. We’re not sure what suspending the share does other than kind of igniting panic or possible panic. It’s like shouting fire in a crowded room. People tend to run to the door. And in this case, they’re asking the JSE to lock the door and we just find that quite puzzling. We think it’s premature, to put it simply.  

On how far gone Tongaat is at the moment

I think it is pretty serious and we’ve certainly been saying this for quite some time. The simple reality is that the business has got too much debt and it can’t carry that debt and service it in the current scenario. Now, I think there’s a complicating factor in that, if you had a great business with too much debt, you could restructure the balance sheet and the earnings would support whatever that restructured balance sheet is. Unfortunately, what’s happened here is that the operational performance has also decayed in the last while. 

So the business itself is not performing that well. But at the end of the day, this is about restructuring the balance sheet. There’s a suitable level of equity and debt. And our view in the last six months was that the proposal, which was a massively dilute free capital raise with a kind of an attached takeover bid at a price that we didn’t even know, because they said we’ll set the rights issue priced some time later down the line. It took six months for it to become apparent that it was not doable. And I don’t think a rights issue is the appropriate mechanism right now to raise the kind of equity that’s required. The company’s kind of gone from a plan A to no plan.  

On what they are hoping to achieve, after the Magister deal was cancelled, and pleading with the JSE not to have the shares suspended after the company requested suspension of trading

I think Tongaat is a company with an enormous history and it also has a very, very important role in the socio-economic fabric of KZN North Coast. There are approximately, depending on who you ask, 350 to 40,0000 people whose livelihoods and survival depend on the sugar industry. 25,000 farmers, scores and scores of workers and obviously all the direct employees in the milling operations. It’s an enormous industry and it can’t fail. It simply can’t fail.  KZN has had the most torrid time in the last two years, and this would be a devastating blow to the region. 

We think the company made a rash decision, one that was detrimental to shareholders in favour of the lenders and in favour of Magister. We think they cut a deal that we didn’t think was appropriate. And we didn’t think it was fair to all the stakeholder groups. Obviously a grandstand critique is of no value to anyone, you’ve got to have a plan. And I would say that we have submitted – and I personally have submitted – extensive communication to the board, setting out what we believe could have been alternative plans. One of those we’ve made public quite often is that we think there are people that should be pursued aggressively for claims of damages. That wouldn’t solve all the problems. Secondly, you know, the banks and the lenders lent 12 billion rand to this company. 

On whether the board should resign and management should be replaced

I hate to say that because it’s such a dramatic statement, but I feel that we don’t have the opportunity to have a discussion. I’m not saying for a minute that I have all the answers. And I guess everybody has a right to assess your capability and experience in the matter, but I think we’ve shown to the management team and the board that we have tremendously deep experience, not only myself, but other people that have been helping. 

I think there’s been a level of arrogance and we can’t understand why. And we really are puzzled.. So, the idea of “enough’s enough” sounds almost petulant. It sounds almost provocative. I think what we are saying is we need to be heard, and we need to understand what this board and this company is doing for its shareholders and other stakeholders. And I think it’s time we actually demanded to be heard, not just write polite letters.  

Tongaat Hulett media statement:

Tongaat Hulett today informed shareholders that the company’s newly established restructuring committee will present the restructuring plan to the Tongaat board by 30 September 2022. The comprehensive restructuring plan seeks to improve liquidity levels, reduce debt to sustainable levels and provide clarity on a way forward for the company to all stakeholders.

As both the Board and the auditor need more certainty around the debt refinancing and balance sheet restructuring, Tongaat was unable to release its provisional annual financial results for the financial year ended 31 March 2022 by 30 June 2022, as required by the JSE.

A longer-term financial solution is required for Tongaat Hulett’s audited annual financial statements to be finalised, and this is largely dependent on the outcome of the restructuring plan. While every effort is being made to finalise the restructuring plan as soon as possible, it is clear that neither the Provisional 2022 Financial Statements nor the Audited 2022 Financial Statements will be finalised by 31 July 2022.

As a longer-term financial solution is required for the results to be released, Tongaat has applied to the JSE to have trading in its shares voluntarily suspended. A suspension would protect the interests of current and potential shareholders as the company engages with multiple parties on solutions to progress the restructuring.

The JSE issued a SENS earlier today confirming that it is considering the request for suspension received from the Board and stating that it will communicate its decision on the possible suspension as soon as possible.

A suspension would have no material impact on the company’s financial stability or its business operations.

To allow sufficient time and resources to complete the restructuring plan, the Company is in final negotiations with the South African lender group to replace the Company’s seasonal overdraft facility with a larger short-term ‘borrowing base’ liquidity facility.

The lender group remains supportive of Tongaat Hulett and is currently engaging with them and other parties to provide liquidity, giving additional time to work to progress a comprehensive restructuring solution.

The company is committed to open and transparent engagement with all its stakeholders, and to working to resolve the challenges that confront this critically important business.  

Shareholders will be updated on developments and further announcements will be made as and when appropriate.

Gavin Hudson, CEO of Tongaat Hulett said: “We have generated further momentum in the restructuring process with a clear timeline and new resources to deliver the restructuring plan at the end of September. We are grateful to our employees who are focused on producing sugar as efficiently as possible. This plan will be critical in addressing our liquidity needs, reducing our debt to more sustainable levels and providing our employees and stakeholders with much-needed clarity. In the meantime, we remain committed to our employees, suppliers, customers, and wider stakeholders.”

“Tongaat’s request made to the JSE for the voluntary suspension of trading in our shares is a purely procedural decision which would protect shareholders and stakeholders as we engage widely to progress our restructuring plans. By progressing a comprehensive restructuring solution, we are working to create a long-term future for the company, and the half a million people which depend on it across Southern Africa,” Hudson continued.  

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