• Tongaat Hulett gets lifeline with extension of post-commencement finance.
  • The extension will allow the company to deliver on operational and business rescue requirements.
  • Analysts say the extension only provides short term relief.

Sandton- Tongaat Hulett, the embattled South African sugar producer under business rescue, announced this week that it had secured an extension of its post-commencement finance facility from its funders until 21 July 2023. The extension will provide Tongaat Hulett a lifeline of much needed cashflow to sustain its operations and navigate the business rescue process.

Tongaat Hulett voluntarily entered business rescue, a local form of bankruptcy protection, in October 2019 after an investigation uncovered accounting irregularities. The company failed to publish audited financial results for the year ended March 2022, leading to the Johannesburg Stock Exchange suspending the trading of its shares in July 2022.

The troubled sugar producer said in a statement that the extension will "allow the Company to deliver on operational and business rescue requirements while the approval process for longer-term funding is finalised." Tongaat Hulett had stopped paying the statutory sugar levies, fees paid to the South African Sugar Association, from November to March, citing provisions under business rescue law. This led to rival RCL Foods, which owns sugar brands Selati, Yum Yum and Ouma, reporting a 30% drop in profits and paying an extra 234 million rand to cover the levy according to Business Live.

Analysts said the post-commencement finance extension was necessary to keep Tongaat Hulett operating but that longer term funding remained critical for the company to emerge from business rescue. "The extension only provides short term relief. Tongaat desperately needs a sustainable solution to its debt crisis if it has any hope of revival," said Respect Gwenzi Chief Analyst at Equity Axis

In a quarterly update, Tongaat Hulett said its shares would remain suspended until it has concluded the business rescue process and published audited financial results for the year ended March 2022." The business rescue practitioners of Tongaat hope to have an amended business rescue plan agreed to by creditors by September 30.

Tongaat Hulett's Zimbabwean unit, Hippo Valley Estates, is also under strain. Hippo Valley chairman Canaan Dube said "in light of the heightened volatilities weighing down the economic and operating environments as well as the increased level of borrowings, the directors have not declared a final dividend for the year ended 31 March 2023." The volatile macro-economic environment in Zimbabwe, including hyperinflation and currency devaluation, has hammered Hippo Valley. The financial woes of its South African parent company, Tongaat Hulett, have also taken a toll on Hippo Valley, limiting its access to capital.

The troubles at Tongaat Hulett and Hippo Valley reflect the bleak state of the sugar industry in southern Africa. Despite government protection and support, high costs of production, cheap sugar imports, droughts and poor crop yields have battered sugar companies in South Africa, Mozambique and Zimbabwe. The restructuring of Tongaat Hulett and its regional operations is seen crucial to sustain the vital but embattled industry.

-Equity Axis News