Tongaat Hulett in talks with JSE to lift share suspension despite persistent losses

Tongaat Hulett’s [JSE:TON] shares could be back for investors to trade on the JSE next month, as the company is due to release its financial statements for the six-months ended September 30 on Friday.

The embattled sugar producer asked the JSE to suspend its shares from the main bourse in June 2019 after it uncovered accounting irregularities that resulted in inflated assets and profits. Its shares were also suspended on the London Stock Exchange. The company asked the JSE in December to postpone lifting the suspension, saying it needed more time to analyse its numbers.

On Wednesday, Tongaat released an update on the outstanding results, warning shareholders to expect up to R327m in losses for the six months to September 2019.

“It was expected that the suspension would be lifted once the company had released its trading statement for the six-month period ended 30 September 2019. Accordingly, the board has entered into discussions with the JSE to request the lifting of the suspension of its shares, potentially in the first week of February 2020,” said Tongaat in an update to shareholders

The company was forced to restate its 2018 profits after the discovery of irregularities. In the restatement of the six months to September 208, its headline loss ballooned to R392m from its previously reported loss of R110m. While the headline loss for the comparable period in 2019 is expected to narrow by between 17% and 23%, the fact that it remains this high will likely be difficult for shareholders to swallow. Tongaat expects a headline loss per share of between -238 and -222 cents, which would be an improvement on the loss per share of -322 cents from 2018.

Tongaat attributed the losses in the six months to end September 2019 from hyperinflation in Zimbabwe, as well as higher finance costs and taxation. The company said Zimbabwe’s official inflation rate increased by 350% from 1 October 2018 to September 2019, affecting the fair value of biological assets. For this reason it had to apply hyperinflation accounting principles.

In South African, lower sales volumes and increased exports - which tend to have a lower profit margin - undermined a 10% improvement in sugar production, resulting in elevated operating losses for the group's local unit.

Karl Gevers of Benguela Global Fund Managers said the lifting of the suspension would be a relief for shareholders looking to dispose their Tongaat shares. "Initially the share price will probably still be very volatile while investors work out a reasonable value after the restructuring efforts.

"Write downs were substantially higher than initially indicated at the suspension, so there could be some pressure on the share price. I would imagine a rights issue would also be needed to recapitalise,” said Gevers.

Even then, said Gevers, the latest updates were significant improvements from a board point of view.

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