Tongaat’s rights issue hits snag as regulator nullifies Magister waiver

Struggling sugar producer Tongaat Hulett’s rights issue of up to R5bn may be in trouble after a regulatory investigation concluded that parties related to underwriter Magister Investments dealt in shares during a prohibited period.

AmaBhungane reported on Friday that it was concluded in a Takeover Regulation Panel investigation that Magister was in fact a related party to firms including Betelgeux Investments, which had picked up Tongaat shares in the period between the rights offer being announced and a takeover waiver being granted. 

Magister had offered to underwrite Tongaat’s rights issue, something that could see its shareholding jump above 50%, but had made this conditional on receiving a regulatory waiver exempting it from making a formal offer for all of the shares.

SA company law requires such an offer if a shareholding rises above 35%, but Magister doesn’t want full control and further wants the group to remain listed.

The panel has now nullified the waiver, saying in an investigative report that due to public policy considerations it felt a more generous interpretation of “interrelated party” was warranted,  than the narrower one put forward by Tongaat. It was concluded in the panel report that there had been insufficient evidence provided by the parties that they had acted independently.

Questions raised

The rights issue on the table is controversial as it is structured in a way that could see Mauritius-based Magister, run by Hamish Rudland, whose brother Simon operates Zimbabwe-based Gold Leaf Tobacco, take a majority stake at a bargain.

Questions were raised about share purchases by Betelgeux, linked to Ebrahim Adamjee, who is a partner of Simon.

The panel said on Friday that it could not comment, and Tongaat said it had the right to apply for a hearing, and was considering its options, further noting there had been no adverse findings against it.

Tongaat added that it remained committed to a recapitalisation, and had already received some positive feedback from those recognising the social importance of the group. Tongaat operates across Southern Africa and is one of KwaZulu-Natal’s largest employers.

Tongaat’s board has been in favour of the rights offer and holds that it will let the group to keep its sugar businesses intact. But it said in a recent update that its recovery was slower than expected, and its SA debt climbed to net R6.8bn to end-March  from R5.8bn a year earlier.

Overdraft facility

Tongaat, valued at R400m, is struggling under the weight of an accounting scandal and operational issues, including being hit by April’s flooding in KwaZulu-Natal.

The group announced last week that to assist with its cash requirements, its lenders have made a seasonal overdraft facility available to the company earlier than previously contemplated. The lenders granted an extension to the end of June on all key debt reduction milestones including, the proposed rights offer and a step-up in the applicable interest rates.

In 2019, it was found in an investigation that managers had overstated profits and the value of assets in what turned out to be SA’s second-biggest corporate scandal, surpassed only by Steinhoff.

Tongaat’s share price was down 1% at R2.96 at the close on Friday, having almost halved so far in 2022 and fallen 97.5% over the past five years.

Update: June 3 2022
This article has been updated with comment from Tongaat.

gernetzkyk@businesslive.co.za