By Sam Sole
This follows the filing of an explosive final affidavit in a Durban high court challenge to the Business Rescue Practitioners (BRP’s) and the Vision consortium selected to buy up about R8.5-billion in crippling debt.
The “secured” claims are held by a “lender group” led by Standard Bank, which has the biggest exposure to the sugar producer.
The case is based on an application by a small, unsecured creditor, Powertrans, led by its sole owner, Durban businesswoman Mohini Naidoo.
Naidoo is asking the court to set aside the business rescue plan adopted at the meeting of creditors held on 11 January 2024.
That plan, backed by the lender group, would have seen the Vision consortium take control of Tongaat in circumstances that were already controversial but are now, Powertrans argues, unlawful and improper.
See our previous analysis: Who is behind the Tongaat Hulett bid battle?
Among the disclosures surfaced by the case, the most striking are:
The Vision consortium, putatively fronted by local tycoon Robert Gumede’s Guma Agri, will actually be dominated by Zimbabwean businessman Rutenhuro Moyo’s Mauritius-based Remoggo Investments. Remoggo will hold around 56% of the restructured Tongaat business. This raises questions about where most of the cash is coming from, with the most likely source being the controversial Zimbabwean Sovereign Wealth fund, renamed the Mutapa Investment Fund, which falls under President Emmerson Mnangagwa’s son Kudakwashe (34) since his appointment as deputy finance minister.
The Vision consortium, which has missed multiple deadlines to make payment to acquire the lender group’s R8.5-billion in claims, had still, as of 26 July, not paid the purchase price contemplated in the Acquisition Agreement (more than six months after the adoption of the Vision rescue plan) and had only paid an undisclosed “substantial cash deposit”.
The BRP’s have allowed Vision and the lender group to shift the terms of the rescue plan so that Vision will no longer acquire all the debt, leaving the lender group with a residual claim against Tongaat of at least R3.6-billion that is likely to be settled via the sale of major assets and the break-up of the current Tongaat Group.
Naidoo, who launched this court application in April, said in her replying affidavit that confirmation of these facts was to be found in a recent BRP circular to shareholders, dated 10 July 2024.
“Therein, the BRPs conceded that the Vision Parties have not acquired all of the Lender Group’s claims and that they will not do so before the business rescue process is concluded; and announced that the Lender Group would retain a R3.6 billion claim against [Tongaat Hulett] post business rescue… The BRPs have not informed creditors of these facts.”
Naidoo argues that these changes are material and irregular, and that the BRPs had a duty to tell creditors that the plan they authorised would not fly but that a new plan was now on the table.
“Once the Plan was incapable of implementation according to its terms. that should have been disclosed to creditors and all affected persons. Instead, it is apparent that the New Acquisition Terms, as now disclosed in the Circular, were secretly agreed between the Lender Group and the Vision Parties, and that the BRPs intend to implement them as if they are authorised by the Adopted Plan – which they are not. On the contrary, the Retention [of a R3.6-billion claim] is severely detrimental to [Tongaat Hulett] and directly contrary to the central tenets of the Adopted Plan.
The problem with the new plan, Naidoo argues, is that it leaves Tongaat Hulett still facing the R3.6-billion claim. And with no surplus cash to settle the claim, the sugar producer will have no choice but to start selling off assets.
“The unavoidable inference is therefore that [Tongaat Hulett’s] assets will be at risk of being sold in order to discharge the Lender Group’s remaining R3.6 billion secured claim.
“It is common knowledge in the industry that [Tongaat Hulett’s] Mozambican business can be sold for approximately USD 200 million, which equates to about R3.6 billion. The amount of the deposit that the Vision Parties in fact paid is unclear. The BRPs and the Vision Parties have declined to provide any proof thereof. However, the proceeds of [Tongaat Hulett’s] Mozambican assets would probably be utilised to settle the Lender Group.”
Naidoo maintains that the BRPs and the lender group have in effect allowed Vision to pay for a significant part of the purchase price out of the sale assets of Tongaat itself, an indulgence not extended to other bidders.
She argues that “this is unlawful infer alia because it has not been authorised by creditors in terms of the Adopted Plan, and it is to the material and undisclosed detriment of [Tongaat Hulett’s] financial position post business rescue.”
She also points out that due to the delays, Tongaat is now exposed to significant additional interest payments and has not secured the extension of business rescue financing extended by the Industrial Development Corporation.
Finally, Naidoo claims that the Vision Parties and the lender group have been allowed to pursue their private interests by agreeing secret new acquisition terms and concludes that “for all of the above these reasons, Powertrans persists in its complaints that the BRPs have abdicated their peremptory statutory oversight obligations and accommodated a private transaction between the Vision Parties and the Lender Group, instead of a transparent, regulated business rescue process under their supervision.”
Both the BRPs and Vision have denied there is anything improper or impermissible in the process they have followed.
They have also accused Naidoo of being a puppet of Mozambican bidder RGS, which pulled out of the race shortly before the creditor vote in January this year.
Naidoo doesn’t care. She notes, “I have stated all along that there are many other affected persons who are aggrieved and share Powertrans’ complaints. The fact that other similarly aggrieved and interested persons are assisting Powertrans does not affect Powertrans’ right to bring this application.
“Powertrans is not pursuing this litigation for reward or any ulterior, undisclosed purpose. Powertrans simply seeks a determination of the lawfulness of the Adopted Plan by a Court.
“The BRPs, Vision Parties and the Lender Group will have to be transparent regarding the nature and terms of the relevant transactions. Only then may it be determined objectively whether the Plan is lawful and whether the BRPs have discharged their duties under the Companies Act.”
Meanwhile it is understood that some Tongaat shareholders have also sought legal advice ahead of the general meeting called by the BRP’s for Thursday, 8 August.
The shareholder meeting has been called to vote on an authorisation to issue additional shares, which would allow for the conversion of the portion of the debt purportedly acquired by Vision into an overwhelming 97% controlling stake.
This would leave current shareholders with substantially devalued existing shares, but the BRP’s have warned that the alternative is receiving nothing at all should the company be liquidated.
The Powertrans case – which has not yet been set down – has given existing shareholders some new leverage and it appears that the battle of Tongaat is far from over.
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