Tongaat not backing down in battle with Barloworld over R5.3bn starch deal

istock
istock

Sugar producer Tongaat Hulett on Friday rejected concerns raised by Barloworld over the profitability of its starch business, which Barloworld is in the process of buying for R5.3 billion.

Tongaat's chairperson, Louis von Zeuner, in a special general meeting maintained the business was profitable despite concerns about the impact of the Covid-19 pandemic on operations. 

Last year, the KwaZulu-Natal based firm was embroiled in a financial scandal that showed accounting irregularities resulting in inflated profits. Its shares plummeted and were subsequently suspended from the JSE for a period of seven months. Since returning to the market, the company's stock price has fallen more than 65% and, due to heightened debt levels that are above its market capitalisation, it has had to sell non-core assets.

According to Nolwandle Mthombeni, Investment Analyst at Mergence Investment Managers, the sale of the business would help Tongaat to plug its debt hole.

"Tongaat needs to pay off its debt in order for debtors not to sent them into liquidation and get the debt restructured. The disposing of the assets is part of the agreement they have with the creditors."

The sale has been placed in jeopardy as the Barloworld subsidiary believes the impact of Covid-19 effected "material adverse changes" on Tongaat's starch business, which may heavily impact earnings.

Differing views

The parties remain deadlocked on the transaction and have not yet agreed on an independent accountant to assess the business. In a statement on Thursday, Barloworld said the transaction "cannot complete" until such time as it has been finally determined whether or not a material adverse changes have occurred.

"The parties have differing views and a process would be followed to assess the facts in this matter. Tongaat's starch business remains an asset that performs well," said Von Zeuner.

He added that the company, which is the continent's largest produce of starch, glucose and a wide range of related products, needed to be ready for any eventuality. It is yet to release its financial results for 2020, but is working to reduce its debt by R8.1 billion by March 2021.

"Shareholders will appreciate that although we have not announced financial results for 2020....we can safely say that we have made significant progress in relation to the turnaround strategy we have embarked upon," said Von Zeuner.

"We have met our commitment to our lenders to date, also we are a business today with improved cash flow."

Tongaat's starch and glucose operations have four wet-milling plants, in Kliprivier, Germiston and Meyerton and Bellville. The group's South African sugar operations generated an operating loss of R283 million against a loss of R121 million in 2018, according to its latest financial report.

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