TONGAAT HULETT DEVELOPMENTS PROPRIETARY LIMITED (THD) BUSINESS RESCUE PLAN RELEASED TODAY

19 May 2023

Holding company Tongaat Hulett Limited and fellow subsidiaries Voermol Feeds (Pty) Ltd and Tongaat Hulett Sugar SA (Pty) Ltd business rescue plans remain scheduled to be released at the end of May 2023

 

·        The THD business rescue process aims to: o   provide opportunities for continued land development through third-party purchasers o   offer opportunities for certain affected contractors to continue with projects o   retain employment opportunities o   avoid adverse impacts on the KwaZulu-Natal property market o   address key environmental risks o   mitigate the potential risk of unfulfilled infrastructure obligations o   result in a higher distribution to secured creditors than in liquidation ·        On successful implementation of the business rescue plan, secured creditors are, in aggregate, expected to receive distributions of around 7 cents in the Rand – compared to 2.5 cents forecast if the company went into liquidation ·        Creditors will vote on the business rescue plan on 30 May 2023

 

Key context

• THD was historically dependent on Tongaat Hulett Limited (THL) for access to working capital facilities. The financial stability of THD was therefore inextricably linked to the financial stability of THL. THD, together with certain other members of THL, granted guarantees and provided security in respect of the obligations of THL under the debt facilities made available by lenders to THL
• Consequently, all material assets of THD were secured in favour of secured creditors (the THL lenders).  In terms of this security provided, THL’s lenders have claimed an amount of ±R7,2 billion against THD. This, together with other business rescue claims against THD, amount to ±R7,7 billion
• This means that as a result of the guarantees given by THD to the lenders that funded THL, the direct liabilities of THD (being ±R400 million) increased by the guarantees given to the THL lenders (the extent of such claims being ±R7.2 billion), as well as post-commencement finance advanced to date (being ±R100 million)
• Therefore, due to the magnitude of THD’s liabilities, the net free estimated cash that can be released from the THD rescue will only be ±7% of the R7,7 billion claims
• Given the secured nature of the bank guarantees (and as secured creditors rank highest in a business rescue, as is required by the Companies Act), unfortunately this means that there is no likelihood of THD paying distributions to unsecured creditors

The business rescue practitioners (BRPs) commented:

 Our objective is to secure an outcome which balances the interests of all stakeholders despite the difficult set of circumstances presented in the case of THD. The business rescue plan aims to mitigate a host of risks, including protecting the KwaZulu-Natal property development landscape, addressing infrastructure challenges, mitigating key environmental risks and providing enhanced returns to secured creditors and improved outcomes (compared to liquidation) for other stakeholders.

 The reality is that THD’s liabilities significantly exceed the value of its assets, which will only satisfy around 7% of creditor claims. In line with the Companies Act, secured creditors (in whose favour all THD’s assets are secured) rank highest in a business rescue. Due to secured creditors’ claims of around R7,2 billion and the limited funds available to THD, the payment of a dividend to unsecured creditors is unfortunately not possible.

 We realise this is a very difficult situation. We have therefore spent a significant amount of time since business rescue commencement evaluating opportunities where construction activities or property development projects could potentially continue with the support of THD’s post-commencement financiers. Discussions with these affected stakeholders are at an advanced stage.

 

Since entering business rescue in October last year, THD has continued to operate on a limited basis with the support of the post-commencement finance (PCF) from lenders. PCF of ±R100 million has been secured so far. Operating costs have been reduced, with cost cutting and efficiency improvement initiatives continuing. Where there is a direct short-term benefit to THD, the BRPs will aim to bring existing property developments to partial or final completion to optimise net sale cash inflows and/or to avoid payment demands for bonds or guarantees. The business rescue plan entails a structured wind down of the company, its operations and the sale of its property assets.

 

The BRPs recognise the hard work and collaboration of everyone involved in the THD business rescue process over the last few months:

 We would like to thank secured creditors who remain supportive and are providing the necessary post-commencement finance and the City of eThekwini who is enabling an environment within which innovative and proactive solutions are being sought. We wish to acknowledge unsecured creditors, especially affected contractors, who are working with us to try to continue with projects where possible, and committed employees who are providing services to THD.

 

Notes to editors

THD represents the property development arm of Tongaat Hulett Limited (THL). The business model traditionally entailed the purchase of agricultural land from THL and the subsequent land conversion and development activities required to convert agricultural land into industrial, retail, office, residential or mixed-use opportunities. THD thereafter markets and sells this land, together with development rights, to third parties for further development purposes. The land owned by THD is primarily located in KwaZulu-Natal.