Tongaat execs see their day in court, will Markus Jooste be next?

Six Tongaat Hulett executives – CEO Peter Staude, Murray Munro, Michael Deighton, Rory Wilkinson, Kamasagrie Singh, Samantha Shukia and a former audit partner at Deloitte Gavin Kruger – were granted R30,000 bail after appearing in the Durban specialised commercial court. This comes after PwC’s nearly three years of investigations uncovered ‘undesirable’ accounting practices at the country’s largest sugar refiner. The executives and audit partner are accused of inflating profits by backdating asset sales that reflected a larger than otherwise bottom line. This resulted in misrepresented financials and its managers receiving huge bonuses. Land is Tongaat’s largest and most valuable asset; however, its true value is largely unknown and the accounting values attached to those numbers are extremely subjective. They especially cannot be trusted when one of the audit partners also wants a piece of the pie.

Tongaat’s controversial R4bn rights issue recently got approved by shareholders, yet, it is on the brink of collapse. The accounting irregularities wiped more than R10bn in market value from the business led by Gavin Hudson, which has struggled to gather any form of momentum since the scandal came to light. Despite a number of tailwinds last year, most notably the robust sugar price, the company had a disastrous operational performance leading to large losses. These issues led to Hudson replacing the management at the refinery and South African operations, but it was too late to avoid a highly dilutive rights issue; R2bn will be underwritten by Magister, an investment company controlled by the Zimbabwean Ruland family. The rights issue was approved mid-January and – given the size of the rights issue relative to its current market capitalisation – will see Magister take control of the business. The shareholders’ register will definitely be an interesting read.

The sugar refiner has already been fined R7.5m by the JSE and a further R20m by the FSCA, and is now coming after the former executives for R450m for cooking the books. Tongaat’s lawyers have initiated a claim against auditor Deloitte for its part in the crime. Auditing is supposed to be an industry of the highest standards and principles in making financial decisions, yet cases such as these are so frequent. It would set a precedent for the audit partner accused, Gavin Kruger, to face similar charges of mismanagement.

Deloitte was also Steinhoff’s auditor. The conductor of the Steinhoff orchestra, Markus Jooste, has yet to see his day in court. There seems to be a sense of urgency in the Tongaat case, which is not good news for Jooste, who is rumoured to be sequestered in seaside town Hermanus. That may not be the case for much longer. His court date will come soon and if the Tongaat case is any form of proxy, the National Prosecuting Authority is not playing games. Tongaat is small-fry compared to what Jooste managed to pull off; undoubtedly, South Africa’s largest corporate fraud.

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