Tongaat Hulett's share price tanks nearly 20% after changes to debt reduction plans

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Tongaat Hulett says it had to ramp-up production of refined sugar to meet industry commitments of the Sugar Master Plan.
Tongaat Hulett says it had to ramp-up production of refined sugar to meet industry commitments of the Sugar Master Plan.
  • Sugar producer Tongaat Hulett's debt reduction milestones have been adjusted to avoid an event of default.
  • Tongaat's share price fell nearly 20% following the announcement.  
  • Tongaat also noted that the financial results of its sugar production would be impacted by higher production costs linked to a production ramp-up in refined sugar.

Sugar producer Tongaat Hulett's share price slumped nearly 20% following a shareholder announcement that its debt reduction milestones have been adjusted to avoid an event of default.

Tongaat on Thursday released a shareholder update on its debt restructuring process. The share price which opened at R10.40 on Thursday was trading 19.32% weaker following the announcement. It dipped as low as R7.55.

Just before 16:00 it was trading down 18% at R8.48.

According to the notice, Tongaat indicated that R6.4 billion of its debt reduction transactions had been concluded. A total of R5.76 billion had been paid to South African lenders.

Tongaat had agreed to a second restructure of existing debt facilities - with revised debt reduction milestones requiring that it sign debt reduction agreements of R8.1 billion, of which at least R6 billion was to be paid by 31 March 2021.

While Tongaat managed to pay R6.01 billion to South African lenders at the end of March, the debt reduction agreements it signed for the period came to R6.65 billion. This falls short of the R8.1 billion required.

"In order to prevent an event of default, THL (Tongaat Hulett Limited) and the South African lenders amended the milestone measurement date from 31 March 2021 to 30 April 2021.

"The parties are in advanced negotiations to amend the cumulative amount of the signed debt reduction transaction agreements from R8.1 billion to R6.4 billion, which will allow THL to meet the milestone," the notice read.

The milestone for 30 June 2021 remains unchanged, and Tongaat must sign cumulative debt reduction agreements amounting to R8.1 billion.

Providing an operational update, Tongaat said that it had to delay the planned annual maintenance shutdown of its sugar refinery to the off-season period to supply a 100 000 ton increase in refined sugar as part of industry commitments outlined in the Sugar Master Plan.

While refined sugar production for the 2021 financial year increased by 40% to more than 450 000 tons, the extra pressure on the refinery production led to increased costs and process inefficiencies. This resulted in a 25 000 ton sugar production loss.

"This will have a material impact on the full-year financial results of the South African sugar operation, though the amount thereof has not yet been fully quantified," the notice read. It said that measures were taken to enhance the refinery process at the most recent maintenance shutdown to avoid a similar occurrence in future.

The sugar producer has been going through a restructuring process, with a focus on governance and reducing debt; this after it was embroiled in an accounting scandal and was found to have inflated its financials by almost R12 billion, Fin24 previously reported.

It had to restate its 2017 and 2018 financial results.

The Financial Sector Conduct Authority in August 2020 imposed a R20 million administrative penalty on Tongaat after it detected accounting irregularities during a probe.

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