Financially troubled JSE-listed sugar producer and property company Tongaat Hulett says it is making progress with its debt restructuring and has concluded a new R600 million borrowing base facility with the South African lender group.
The company said on Thursday that negotiations are also progressing with funders outside of the lending group to secure a further R750 million.
Tongaat CEO Gavin Hudson said the company continues to progress the turnaround and restructuring plan that will be delivered to the board at the end of this month.
“We have also addressed the group’s short-term liquidity needs and are working to extend the borrowing base facility as a matter of urgency,” he said.
The current restructuring plan is being developed by the company’s chief restructuring officer with the support of the restructuring committee and is aimed at dealing with excess debt in the South Africa operations, which is currently estimated at about R6.3 billion.
Although the new borrowing base facility will only remain in place until 30 September 2022, the company said an option to upsize the facility, which is subject to credit approvals, is being negotiated.
It said the South African lender group has also not enforced the contractually agreed interest rate margin increases to date, adding the intention is for the borrowing base facility by the lenders to be increased from R600 million to R750 million and extended to the end of the 2023 financial year.
However, it said this is dependent on the mutual agreement of the board’s restructuring plan.
If both engagements are successful, the total liquidity requirements of the South African operations will be met for the 2023 financial year, it said.
“It is anticipated that these two liquidity facilities will be repaid from carry-over proceeds received from the SASA [SA Sugar Association] at the end of the season.
“In parallel, management continues to progress numerous initiatives to improve cash flows and liquidity headroom,” it said.
The company said an initial restructuring plan was presented to its board and lenders at the end of July and a draft plan was submitted to lenders on 31 August.
“As part of the conditions of the borrowing base facility, a board-approved plan is to be available by 23 September 2022.
“This aims at dealing with excess debt in South Africa, currently estimated to be around R6.3 billion,” it said.
Options currently being explored by the company include an equity capital injection by strategic partners at various levels within the group, the disposal of some or all of the African operations, or a combination of these options.
Tongaat stressed that when assessing the disposal of the African operations, a key consideration is the ability of the South African operations to operate as a listed entity on a standalone basis, and the ability to fund the necessary reinvestment to be sustainable long term.
In a trading update for the year to end-March 2022 released with the debt restructuring update, Tongaat reported that the cash flows from the South African operations experienced significant pressure during the 2022 financial year on the back of disruptions in the sugar and property operations, lower than anticipated dividend and fee income received from Zimbabwe, and no dividend or fee income received from Mozambique due to restrictions on intergroup payments as contained in the in-country debt agreements.
Tongaat said the group’s South African sugar operations reported an operating cash outflow for the year of about R500 million due to the need to reinvest in the milling assets and adverse working capital movements.
In addition, the company said the amount due to be refunded to SASA for the refinery loss was finalised and the amount settled over the course of the season through the industry’s redistribution mechanism.
Tongaat said finance costs settled in cash by the South African operations placed further strain on liquidity towards the end of the year, with these challenges increasing the overall net debt of the South African operations by R800 million to R6.6 billion.
It said R5.4 billion of the total R6.6 billion is owed to the South African lenders, with the balance relating mostly to trade finance provided by SASA.
Tongaat said the group’s total net debt, including Mozambique and Zimbabwe, increased 15% to R7.6 billion from R6.6 billion.
Hudson said despite the flooding in KwaZulu-Natal and rain-induced lower sucrose levels, it is pleasing to note that the South African sugar mills are performing well ahead of the prior year and have benefitted from the significant efforts invested in the off-crop maintenance programme.
“Both sugar and animal feed products are delivering a strong commercial performance.
“In Mozambique, the season start-up was also affected by heavy rainfall but the sugar mills are gradually catching up on this lost milling capacity and the business continues to perform favourably.
“Macroeconomic conditions within Zimbabwe remain challenging and unpredictable with the introduction of several measures to curtail inflation,” he said.
Tongaat anticipates reporting a headline loss per share of between 676 cents and 632 cents in the year to end-March 2022 compared with end-March 2021 restated headline loss per share of 440 cents.
Shares in Tongaat closed unchanged on Thursday at R4.04.