BUSINESS LIVE / 14 MAY 2019 - 19:14 / ANN CROTTY
Sugar company forced to unwind its heavily indebted broad-based empowerment scheme
Rand Merchant Bank (RMB) and Nedbank will acquire significant shareholdings in Tongaat Hulett after the sugar and property development company was forced to unwind its empowerment deal.
In a statement released on Tuesday the company said that RMB and Nedbank have exercised their rights in terms of the broad- based BEE (BBBEE) funding agreement to acquire 23.4-million Tongaat shares at 1c a share.
The banks have taken an undisclosed hit on their funding of the Tongaat BBBEE deal and have forced the deeply indebted transaction to be unwound.
The forced unwinding of the BBBEE transaction is the latest knock for Tongaat, which has been dogged by controversy and claims of mismanagement for over a year. In that time its share price plummeted to a low of R15.15 in March before recovering marginally to its current trading level of R20.76.
The purchase of the shares will see each of the two banks emerge as major shareholders in Tongaat, which has had no dominant shareholder since it was unbundled from Anglo American several years ago. Each will acquire a 9.07% stake, which is equivalent to 12.3-million shares and at the current share price is worth about R258m.
At the time the BBBEE transaction was initially put in place, in June 2007, the deal was valued at billions of rand. This means each of the funding banks may have lost hundreds of millions of rand on the transaction, an analyst who did not want to be named said on Tuesday. Neither Nedbank nor RMB was immediately able to respond to a request for comment.
The two strategic partners to the BBBEE deal, Ayavuna Women’s Investments and Sangena Capital, held a combined 30% of the BBBEE stake and were represented on the Tongaat board. Two trusts representing communities in certain of Tongaat’s land conversion and cane growing areas held the remaining 70%.
Ayavuna and Sangena contributed R18m to the funding requirements. No funds were invested by the community trusts.
In July 2014, when the Tongaat shares were trading at about R155, a share repurchase calculation, performed in line with the terms of the BBBEE transaction, concluded the share price had not appreciated sufficiently over the seven-year vesting period. At that stage, the company said on Tuesday, it decided to extend the deadline for the transaction to January 31 2019 “in order to facilitate the possibility of a restructure”.
In April RMB and Nedbank exercised their rights to acquire the BBBEE shares and informed the company they were in the process of transferring the shares into their own names.
Also in April Tongaat informed shareholders that it was likely to have to restate previously released financial information due to the findings of the strategic and financial review launched in March.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER