Inside Tongaat – banks, BRPs, corporate vultures fight over carcass of KZN’s fallen giant
It's five years since massive accounting fraud was exposed at Tongaat Hulett, plunging KZN's largest industrial group into a death spiral. With little incentive to end their regular income stream, fee-earning "super helpers" have been feasting on the company's carcass, while bankers delude themselves by charging notional interest on debts that will never be repaid. Yet some excellent assets are still there to be grabbed – and sensing fatigue of shareholders, corporate vultures have been gathering. Corporate activist Dave Woollam shares the latest twist in the sorry saga with BizNews editor Alec Hogg.
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Highlights from the interview
In this interview, Dave Woollam, a shareholder activist, discusses the challenges facing Tongaat Hulett, particularly the company's deep financial troubles and its ongoing business rescue process. He highlights the neglect of Tongaat's operations in Mozambique and Zimbabwe, which have suffered from a lack of investment and management oversight. Woollam criticizes the business rescue practitioners (BRPs) for their lack of transparency and questionable decisions, which he believes have prolonged the crisis.
He points out that while the company's core businesses, particularly in sugar and land, remain fundamentally strong, the overwhelming debt burden prevents any recovery. Woollam expresses frustration over the situation, noting that the banks, which hold the primary rights, have been reluctant to take decisive action, likely due to the complex political environment in the countries where Tongaat operates.
Woollam urges the banks and all stakeholders to find a solution that minimizes losses and protects jobs, although he acknowledges that a "win-win" outcome is no longer possible. He draws parallels to other corporate collapses, emphasizing that without bold action, the situation will continue to deteriorate, leaving all parties worse off.
Edited transcript of the interview ___STEADY_PAYWALL___
00:00:11:11 – 00:00:39:15
Alec Hogg:
There seems to be a heck of a lot going on in KwaZulu-Natal right now. We have the well-known Rory over the Comrades Marathon. We have Chris Pappas fighting with the Pietermaritzburg municipality. His municipality is in eThekwini, and once upon a time, the biggest industrial company in the province, Tongaat Hulett, is back in the news. There's a big fight going on there as well.
00:00:39:15 – 00:01:01:17
Alec Hogg:
Now, the iron man on the Tongaat Hulett story for some years now has been Dave Woollam. Dave, good to be talking with you. Just so I can introduce you: you live in KZN, and you have been a shareholder activist on Tongaat Hulett. You went to the board of Tongaat Hulett and told them, long before the trouble started, what they needed to look out for.
00:01:01:17 – 00:01:44:14
Alec Hogg:
They rejected you. They kicked you out. You are a chartered accountant. You used to be the financial director of a major bank, so you kind of know your way around the numbers. We've been bombarded from both sides now—people who want to buy Tongaat Hulett, some apparently trying to get it on the cheap, others claiming that the shareholders are stupid because they're going to lose everything. If we can just start at a basic position for somebody who knows nothing about Tongaat Hulett—in many ways, it's a bit like what happened with Steinhoff, where you had a company that was once allegedly an incredible operation. But actually, there was all kinds of funny stuff that happened inside. Just in a nutshell, tell us what went on.
00:01:52:18 – 00:02:20:03
Dave Woollam:
Thanks, Alec. Thanks for having me on. I'll try not to take too much time on the intro, but one has to go back, you know, probably even 7 or 8 years when the company had diversified into property. That property for a while was really, really successful. The whole of the Durban North area, from Umhlanga Ridge all the way to the airport, became very, very fertile ground for Tongaat.
00:02:20:05 – 00:02:48:10
Dave Woollam:
The debt started to grow, and the kind of golden goose that was laying the golden egg stopped laying. The company that had been reporting very, very good earnings suddenly found itself short. So they made up numbers—in simple terms, this wasn't a complex fraud. There was actually no real fraud like the expropriation of money or extracting money. It was falsifying numbers, making the numbers look better than they were. In that process, they also accumulated a lot of debt. So, it's usually a red flag to anyone when profits are high and the company is raising a lot of debt. Well, if your profits are so high, why do you have to raise debt? That was the starting point.
00:03:06:21 – 00:03:39:05
Dave Woollam:
Since then, things unfolded very quickly. The company was put under a massive investigation, and they determined that multiple billions of assets that were being carried were really assets that were either deferred expenditure or they were property deals that were fictitious. The board decided at a point that they needed to go into business rescue. The banks had drawn a line in the sand.
00:03:39:07 – 00:04:01:05
Dave Woollam:
I have some sympathy for the banks in a way. I have this sympathy now, but at that stage, I think they'd been dragged along and dragged along for a long, long time, being told one false promise after another. They drew the line and said, "No." The business rescue practitioners came in on October 22nd. They took some time to get a handle on things.
00:04:01:07 – 00:04:27:20
Dave Woollam:
We were concerned right from the beginning that the agenda set by the BRPs was flawed. They insisted on the group being sold as a whole. We couldn't really understand that—a company with multiple billions of debt having that as its primary goal. And so what we saw was many, many suitors, but mostly wanting one or two parts of the business.
00:04:27:22 – 00:04:49:23
Dave Woollam:
They eventually settled on a company called Jazeera, a Tanzanian company. They promised the money but didn't come up with it. We're not sure exactly what happened, but they presented a guarantee by the IDC, and the IDC failed to deliver it. It was withdrawn, the person responsible was suspended, and so we were back to square one.
00:04:49:23 – 00:05:14:16
Dave Woollam:
Since then, we've just had, quite frankly, a mess. We've had bidders coming in and going out. We've had no transparency at all. We've asked the BRPs to give us information, but we have not had any financials since March 22nd, and even those financials were kind of a summary. They weren't proper financials.
00:05:14:16 – 00:05:33:22
Dave Woollam:
The last audited annual report published by Tongaat was in March 2021. Now, we believe that's a fundamental transgression of the listing requirements because they are a listed company. They might be suspended, but they're still listed. In fact, as a company, they also have to comply with the Companies Act. We've been told, "No, the auditors won't sign off the financials."
00:05:33:22 – 00:05:55:08
Dave Woollam:
And we understand that because they're not a going concern, but you can qualify. That's why we have qualified audit opinions, why we have emphasis of matter paragraphs. So we find that reason absolutely bizarre. But to fast forward now—we got to December. There were two players: Argus, a Mozambican outfit…
00:05:55:10 – 00:06:23:13
Dave Woollam:
Vision, a consortium of South African, Zimbabwean, Estonian, and Pakistani players in the sugar industry, emerged as the preferred bidders in the BRP process. There was a lot of controversy, a lot of court interdicts, and a lot of court cases that ran around December.
00:06:23:15 – 00:06:48:00
Dave Woollam:
The sugar industry launched an interdict because they were owed money. There were interdicts launched by creditors and raised by just about everybody. But at the end of the day, the BRP was approved on the 11th of January after three adjourned meetings and multiple amendments—last-minute amendments, little words changed. But when you look at those words, they turned out to be very, very important.
00:06:48:02 – 00:07:15:06
Dave Woollam:
For example, the biggest issue we face right now is that Vision has supposedly acquired all the lender claims. They've acquired from the lender group—the 11 financial institutions—all the loan claims on Tongaat and all the security, which makes them by far the largest creditor and a secured creditor, for that matter. It turns out, however, that they haven't paid for those loans.
00:07:15:07 – 00:07:37:04
Dave Woollam:
So that, for us, was a big issue because we said, "Hold on, you can't buy the loan claims on a company on credit." It's bizarre—never mind the business rescue practitioners accepting that basis. Because what happens when you don't pay? What happens if you don't come up with the money? Are the banks going to take back those loan claims? Are they going to take security?
00:07:39:01 – 00:08:00:17
Alec Hogg:
Tongaat Hulett has lots of land, particularly to the north of Durban in Umhlanga. It did great development at some point in time. Those old sugar cane fields, which it still owns, have got to be worth something. They've also got a position in Zimbabwe, which at some point in time is going to be worth something.
00:08:00:19 – 00:08:17:08
Alec Hogg:
Similarly, in other parts of the region. Why is it that shareholders are getting nothing? Is this because the banks are owed so much money that it doesn't matter what those assets are worth; they're actually never going to be able to repay the debt?
00:08:17:10 – 00:08:41:07
Dave Woollam:
It's a very good question. The total debts, as compiled by the claims on the company—secured and unsecured—compiled by the business rescue practitioners, are about 12 billion rand. So I guess common sense would tell you that if the sum of the value of the assets or the sum of the parts, or the value of the whole, is more than 12 billion, then shareholders have something.
00:08:41:09 – 00:09:08:16
Dave Woollam:
If it's less than 12 billion, they probably don't have a lot. I would guess that there was a time when these assets were worth way more than that. In fact, we were told in 2021 and 2020 that the land itself was worth 11.5 billion rand, according to the auditors with a certificate of valuation produced by a major independent property valuer.
00:09:08:17 – 00:09:30:05
Dave Woollam:
But they've since told us, "Well, the land might be worth that if you wait 100 years, but it's not worth it if you're fire-selling assets for liquidation." So that is real, and that's an accepted concept. Similarly, Mozambique is a fantastic operation. We know there have been offers on the table for approximately $200 million for Mozambique. That translates to about 3.6 to 3.7 billion rand.
00:09:30:05 – 00:10:00:03
Dave Woollam:
We know that Zimbabwe is one of the best sugar estates in the world. It is in dire straits right now because of local geopolitical issues, poor political governance, and a lack of care by the Tongaat management. But it's one of the greatest sugar estates in the world, producing 500,000 tonnes of sugar at some of the highest yields globally.
00:10:00:03 – 00:10:32:17
Dave Woollam:
So that is a highly valued business if Zimbabwe can stabilize. South Africa is a diminishing sugar producer because the land is not irrigated and relies on rainfall. Nonetheless, it produces 500,000 tons of sugar and can produce up to 600,000 tons. When I add all this together and I say it's roughly 1.4 million tons of sugar, it should produce EBITDA of around 1.2 to 1.4 billion rand.
00:10:32:18 – 00:10:54:19
Dave Woollam:
That is a business that, even with a conservative multiple, is not worth nothing. But what's happened is that the debt has accumulated interest for five years. I don't know whether they were trying to scare shareholders in the circular, but they put a table that showed if we delay the conversion of debt to equity month by month, what the debt would grow to.
00:10:54:20 – 00:11:21:08
Dave Woollam:
Well, a simple mathematical calculation will tell you what the implied interest rate is. The simple math works out to 19.6%. So those are the interest rates that are now being charged on these loans because they are in default. Now, I don't think there's a fintech or a startup tech company in the world that can pay 19.6% interest rates and survive.
00:11:21:08 – 00:11:40:06
Dave Woollam:
It just doesn't work. That makes your debt absolutely enormous. So they're stuck between a rock and a hard place. I estimate that of the 8.5 billion owed to the banks, around 4 billion is just interest accumulated in the last three and a half years. So, you know, the problem just never goes away.
00:11:40:08 – 00:12:05:16
Alec Hogg:
So until you grasp the nettle or until someone takes a hit in some way… Yeah. What is likely to happen from here, Dave? You know the inside story. You know the people who are involved here. Are the Mozambicans going to be able to come up with a deal? Will the banks see that there needs to be some kind of conclusion? Or indeed, will Committee and Vision be successful?
00:12:05:18 – 00:12:27:05
Dave Woollam:
So, again, I think our greatest concern—and when I use the word "our," there's a group of shareholders that have around 18 to 20% of the shares that have kind of collaborated. We've stayed very involved just because we really have a passion for Tongaat, the business, and its people. And I can't emphasize that enough. It's not about the money.
00:12:27:07 – 00:12:44:18
Dave Woollam:
We have said all along, if a solution can be put on the table that is great for the company, we don't mind. We accept that we can't have our cake and eat it. You know, if the shareholders had come up with the money, that would have been done a long time ago. They didn't show any interest.
00:12:44:22 – 00:13:18:13
Dave Woollam:
Most of the institutional shareholders sold and went away. So we have three big shareholders at the moment: the PRC, Artemus—which is one of our group of shareholders, a property company from KZN—and Redlands, which still have something in the order of 15%. For the rest of us, we just want a solution that is going to help this company keep the North Coast economy alive first and foremost, and obviously Zimbabwe and Mozambique, where there are very significant numbers of livelihoods.
00:13:18:15 – 00:13:48:08
Dave Woollam:
People depend on the livelihoods of these businesses. We are puzzled by the choice of Vision, which we believe is paying 3.6 billion rand for the 8.5 billion in claims. So they're getting about a 60% haircut, yet they haven't been able to pay for that portion of the acquisition. They still have to pay creditors in terms of the BRP plan, they still have to pay the Sugar Association.
00:13:48:10 – 00:14:13:01
Dave Woollam:
And most importantly, they've got to put money into the company. This company needs about a billion rand capital injection. All the circulars, the voting, and everything that took place in the last two months were about pieces of paper being swapped around, scratching out the lender group and putting in Vision, issuing 4.9 billion shares, and scratching out some of the loan claims—5 billion of it.
00:14:13:03 – 00:14:36:14
Dave Woollam:
But that doesn't change the economics of the company one bit. We are just concerned that we're jumping out of the frying pan into the fire with a weak shareholder who is opportunistically doing this deal but doesn't have the financial strength to see it through. This means it's most likely we'll start seeing assets being sold, the breakup of the company, radical cost-cutting, and after five years, if this is all we can come up with, it's a tragedy.
00:14:36:16 – 00:15:12:02
Alec Hogg:
What's happened to the employees? What's happened to those people who, at one stage, there were many thousands employed or who relied on Tongaat Hulett for their livelihood? What's happening there? And is this what's concerning you—that they could finally have the rug completely taken away from them at liquidation?
00:15:12:04 – 00:15:37:16
Dave Woollam:
Which the BRPs and Vision have sort of threatened as the outcome. You know, they were very, very angry with shareholders voting no last week. And I think they didn't really pause to talk to us or even engage with us at all to understand why we did what we did. We did it because we were concerned that if they got 97% of the company and they hadn't put money in—all the money for the debt—they would have complete control.
00:15:37:16 – 00:16:06:23
Dave Woollam:
There are no more real avenues for intervention. But the company, by and large—remember, Mozambique and Zimbabwe are not under business rescue; they are independent operations in foreign countries—has been neglected tremendously. There's been no money, no management time. They've been neglected and are suffering from a lack of any management oversight. But Southern Africa has continued to operate.
00:16:06:23 – 00:16:31:02
Dave Woollam:
The property business is all but liquidated. It's closed down. That doesn't mean the land—all that land from Armstrong Ridge all the way up to the airport, covered in sugar cane fields—isn't available for development one day, but it's all still in Tongaat Sugar. The Tongaat Sugar business has largely kept its employees. Suppliers are being paid right now.
00:16:31:04 – 00:17:04:13
Dave Woollam:
The farmers are all being paid, but there's about one-point-something billion owed to the creditors—your trade creditors, your engineering firms, transport companies, electricians, builders—and about 500 million owed to the sugar industry under the Sugar Act, which is a redistribution payment at the end of each season. So, of that, about half is owed to the millers, the other half is owed to the farmers.
00:17:04:15 – 00:17:20:15
Dave Woollam:
So there's a lot of money—a couple of billion—that has been lost. But to be honest, I'm very, very grateful that, by and large, jobs have been saved. The growers are being paid, and creditors are at least being paid now. Their pre-business rescue debts have been frozen.
00:17:20:20 – 00:17:22:20
Alec Hogg:
So what's going to happen next?
00:17:22:22 – 00:17:42:12
Dave Woollam:
Well, I've maintained all along that this is a balance sheet debt problem, not a business problem. You know, the businesses are actually really good businesses. They were neglected through lack of CapEx, but we've seen some improvements in the last little while. The sugar business, as we understand, generated about 500 million of free cash flow this year.
00:17:42:12 – 00:18:06:11
Dave Woollam:
So that's good. We know that because the IDC facility dropped quite dramatically. Zimbabwe is a great business, but very neglected and very caught up in politics. And Mozambique is a fantastic business. So these businesses—and the land business, though I think KZN is stalled for now, the inevitable pendulum will swing back, and there will be a demand for land.
00:18:06:13 – 00:18:32:12
Dave Woollam:
So these are great businesses, but when you've got such an overhang of debt, you can never dig yourself out of the hole. What we need is for the company, the business, to be freed from the shackles of this debt. The reality for the banks is they're not going to get back any more money. We're actually puzzled that one bidder has bid for Mozambique—just Mozambique—for roughly what Vision is paying for the whole group.
00:18:32:13 – 00:19:02:17
Dave Woollam:
We don't really understand the economic logic of that—why you would be so obsessed with keeping it all together when one piece of it… We also understand that a $100 million bid was made for sugar operations in Zimbabwe. So that's 5.4 billion, a hell of a lot more than the 3.6 billion being offered by Vision. Well, we understand, allegedly, the payment to the banks is a paltry amount—75 million to the creditors, about five cents on the rand.
00:19:02:19 – 00:19:21:22
Dave Woollam:
So it just seems like a very poor deal, and we don't know why. And always, in the absence of a logical answer, I have to start asking questions. Well, surely, if the logical answer is "X," and you're not doing "X," why? We don't get any answers; it's just a complete lack of transparency.
00:19:22:00 – 00:19:45:09
Alec Hogg:
Just trying to put it in terms that everyone would understand—like that movie Wall Street, if you recall, with Michael Douglas, a real classic about business—it was all about asset stripping. So, an opportunist would see that here was a business that had great assets, go in, buy it for a song, break it up, and make a fortune.
00:19:45:11 – 00:19:46:18
Alec Hogg:
Are there parallels?
00:19:46:20 – 00:20:10:13
Dave Woollam:
I think it would be sensationalist, and I'm really trying to avoid getting into the gutter press. We've had a lot of gutter press in the last year—some absolutely, truly bizarre articles being published. So I'm going to say no to that. I don't think that's the case. I think the banks have got themselves so far down the road that they're finding it very hard to think about a reverse gear or changing tracks.
00:20:10:15 – 00:20:37:12
Dave Woollam:
I think Vision came in with a vision—excuse the pun. They thought, I believe, that the PRC would participate, but I believe the PRC is not participating. I say "believe" because I don't know, but I'm well-informed. And I think what happened is that the funding disappeared. Now they're scrambling to get funding, and this is the case of everybody scrambling and running out of time.
00:20:37:14 – 00:20:54:03
Dave Woollam:
We've seen it with Eskom, we've seen it with CNA, and we've seen it recently with Steinhoff. Similarly, the problem is the debt just keeps building, and nobody seems to be able to grab the nettle and do something bold.
00:20:54:05 – 00:21:03:02
Alec Hogg:
And in the meantime, the business rescue practitioners presumably are getting paid. So they have, well, not a great incentive to wrap things up.
00:21:03:04 – 00:21:25:01
Dave Woollam:
They should. And again, I don't want to get into playing the man. We are disappointed by the lack of transparency from the BRPs and the strange decisions that have led us here. We've offered our help so many times. There are, as Warren Buffett calls them, the "helpers." You remember from his letter many years ago, there are a lot of them in this.
00:21:25:03 – 00:21:42:12
Dave Woollam:
They are the super helpers. We have had more law firms and advisory firms than you could fill a page with, and no doubt they're being paid. I guess I have no problem with that, but they need to deliver some success. At the moment, we've seen no success at all, quite frankly.
00:21:42:14 – 00:22:12:19
Alec Hogg:
So we've got parasitic, if you want to be pretty brutal about it—parasites who are enjoying the fruits—they're getting paid anyway, on the one hand. Then you've got the banks, fooling themselves by adding capitalized interest, which they're never going to receive. But I guess they're in a disincentive situation. If they write that off, they're going to take a big hit against their profits, and their shareholders won't be too happy about that.
00:22:12:19 – 00:22:33:10
Alec Hogg:
And because everyone is kicking the can down the road for good reason—if you're a professional or a super helper—and for good reason if you happen to be a bank, it's just turning into a bigger and bigger problem. So my question really is: What's going to break the logjam? What is going to end all of this?
00:22:33:10 – 00:22:35:10
Alec Hogg:
What is going to end all of this?
00:22:35:12 – 00:23:07:12
Dave Woollam:
Well, we have reached out and will continue to reach out to the banks first and foremost because they hold the key—they hold the primary rights. We understand the banks, in a way, wanted someone else to come in and deal with all the commercial reality that is involved in something like this, rather than doing it themselves. They're lenders—they don't really want to be owners, and they don't want to be the ones making hard decisions that are politically difficult in three countries that have very, very complicated politics right now.
00:23:07:14 – 00:23:32:08
Dave Woollam:
So I guess for them, it was very convenient to have somebody who could take that away from them. But we urge the banks to listen to all the stakeholders, to listen to those who have a relative interest in trying to save this company, and to consider the people, the history, the long history of the company, and try to figure out a solution that actually works. There's no win-win.
00:23:32:08 – 00:23:50:06
Dave Woollam:
I think the idea of a win-win just doesn't exist anymore. But there's a "least bad" outcome, and if the least bad outcome protects jobs, sustains the businesses, and gives them the space to rebuild themselves, then that's as close to a win as I could hope for, and I'd be excited. I just don't see that happening right now. There are just too many lawyers, too many court cases happening.
00:23:52:17 – 00:24:02:12
Alec Hogg:
But just to close off with, as far as Steinhoff is concerned, the banks had to take a hit. Have they written off anything yet on Tongaat?
00:24:02:13 – 00:24:26:18
Dave Woollam:
Well, I think the CFOs of the banks would have provided for this heavily already. The different rules say you have to provide, regardless of what you might get back. You have to provide according to a probability-based outcome. So I suspect if the purchase price is 3.6 billion, they're probably holding it at way less than that because provisions are normally conservative.
00:24:26:20 – 00:24:48:03
Dave Woollam:
Obviously, they're really interested in the cash. They want to get some cash out of this and be done with it. They have all these intensive care units that look after these problem accounts, and they're trying to maximize cash. I think they're heavily provided for. They're not going to suffer a loss in accounting terms. They're going to suffer an economic loss when they finally have to give up the ghost.
00:24:48:05 – 00:25:07:15
Dave Woollam:
But I think that's already happened. I don't think anyone's fooling themselves about that. What's really important right now, I think, is that there's some moral hazard risk in this. And I suspect the banks don't really want to be holding that, and I have some sympathy with them. It's not their business.
00:25:07:17 – 00:25:17:01
Alec Hogg:
The Gordian Knot. That's Dave Woollam, a shareholder activist who has been following the Tongaat story very closely. And I'm Alec Hogg from BizNews.com.
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