Plan to save historic 134-year-old company in South Africa from liquidation
A group of large-scale sugar growers is looking to save Tongaat Hulett, with the iconic company set for a liquidation hearing less than one month away.
Tongaat’s history dates back to 1892, and it grew into one of the nation’s primary sugar producers, supporting thousands of jobs in KwaZulu-Natal.
Despite its significant history, the company was placed in business rescue in October 2022 after an accounting scandal under its former management.
Although it received funding from the Industrial Development Corporation and the Vision Consortium, the parties would disagree over further funding arrangements.
This led the business rescue practitioners to apply for liquidation in February. Its liquidation proceedings in April, however, were delayed after the IDC extended a funding facility to the end of June.
With liquidation proceedings scheduled for next month and no firm solution to the company’s future, a grower-led entity has been established.
This entity, called GrowerCo, is seeking funding to keep Tongaat’s mills and refinery operational, warning that this infrastructure is crucial to preventing a collapse of the sugar industry.
The entity looks to include small- and large-scale growers as equity partners. It said this is in contrast to an extractive private equity model.
The group said that it is focused on “maintaining milling operations, safeguarding jobs, and preserving economic activity across rural KwaZulu-Natal.”
Tongaat’s operations support between 35,000 and 40,000 direct jobs at the farm level, its mills, and its refinery, making it an economic anchor for entire rural communities.
“The future of KwaZulu-Natal is intricately tied to the future of Tongaat Hulett,” said Pratish Sharma, a grower who supplies Tongaat Hulett’s Maidstone mill.
“The long-term economic and societal consequences of its liquidation would far exceed the liabilities on the company’s balance sheet.”
Over 17,000 of South Africa’s 28,000 sugarcane growers supply Tongaat Hulett, most of whom are small-scale farmers.
The entity said that 75% of the sugar industry’s revenue stems from KZN, where Tongaat Hulett is a dominant driver of economic activity.
About 77% of the sugar industry’s revenue stems from KwaZulu-Natal, where Tongaat Hulett is a dominant driver of economic activity.
“GrowerCo not only makes sense because it puts Tongaat Hulett under the ownership of people with a long-term commitment to the sugar industry in South Africa,” said grower Nicholas Ngobe
“Small-scale growers are equity partners in GrowerCo and will earn returns not only on their sugarcane but will share in equity growth over the long run.”
R1 billion vs R4.5 billion
GrowerCO said it had raised long-term and patient capital and would unlock sustainable value over time by stabilising and strengthening a crucial agricultural value chain.
It added that liquidation would destroy not only rural livelihoods but also value in Tongaat Hulett for its current debtors.
It believes that debtors would be able to realise R3 billion to R4.5 billion for Tongaat Hulett if it is sold as a going concern. However, the value recovery during liquidation could be as low as R1 billion to R1.5 billion.
“GrowerCo is a stakeholder-inclusive plan to avoid a liquidation scenario and to ensure that Tongaat Hulett’s South African sugar operations can continue as a going concern,” said Sharma.
“It has been designed by the people who supply the cane, operate the mills, and depend on the industry, and is built around patient capital and a model of reinvestment.”
Tongaat’s assets are at the centre of a rural economy that includes cane growers and mill workers, transporters, food producers, retailers, and consumers.
GrowerCo said that the interdependence provides the foundation of the investment case: without functioning mills, growers have no route to market.
Moreover, without a sustainable cane supply, the mills themselves would have no value. The entity thus believes that its proposal solves both sides of the equation.
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