Agroprocessing group Tongaat Hulett's board has determined that the company is in financial distress and has decided to start voluntary business rescue proceedings.

The company reiterates in an October 27 statement to shareholders that its current financial position stems from years of high and increasing debt levels, alleged financial misstatements by previous management and historic mismanagement by the previous leadership.

The group in 2019 embarked on a comprehensive turnaround strategy, which enabled it to reduce its debt by more than R6-billion from a high of R11.7-billion, through the selected sale of assets and various cost and liquidity management actions.

"Despite this progress, delays experienced in the recapitalisation of the company, particularly the failed planned equity capital raise, have seen high debt levels remain well in excess of what can be serviced by the company.

"Consequently, further initiatives are urgently required to address the excess debt burden in the South Africa operation of more than R6.3-billion," the company stated in an October 14 release in which it announced the approval of a capital restructuring plan created by chief restructuring officer Piers Marsden and a restructuring committee.

The restructuring plan broadly envisaged that Tongaat dispose of its non-South African sugar operations; that it secure a sponsor to support the capital reinvestment required by the South African sugar operation; that it introduce a five-year debt instrument, repayable through the disposal of certain of the company’s landholdings; that it progress the respective legal claims arising from the alleged financial misstatements; and that the company’s corporate office be aligned with a smaller operating footprint.

"While interest had been expressed by both existing shareholders and potential new equity investors to support the recapitalisation of the company and retain its existing operating footprint, to date, the amount of potential equity and timeframes within which it may have become available, precluded a solution to the company’s excess debt problems, Tongaat says.

This was, however, not possible, prompting the board to initiate the business rescue of Tongaat and Tongaat Hulett Developments (THD), which is dependent on Tongaat for its funding.

Tongaat’s Botswana, Mozambique and Zimbabwe sugar operations are not financially distressed and will, therefore, continue trading.

The board has appointed Trevor Murgatroyd, Peter van den Steen and Gerhard Albertyn of Metis Strategic Advisors as the business rescue practitioners (BRPs) for both Tongaat and THD.

The BRPs will assess the affairs of the group and consider available options to rescue Tongaat. They are expected to present a proposed business rescue plan to shareholders in due course.