Zim threatens to withdraw Tongaat-Hulett privileges

Zimbabwe may consider withdrawing some privileges of Tongaat Hulett Limited operations in Zimbabwe after it was excluded from participating in the process of selecting a strategic equity partner for its assets under unclear circumstances, senior Government officials revealed yesterday.

Zimbabwe, through Sovereign Wealth Fund (SWF), made a bid to acquire the assets, but was “not allowed to participate,” according to Secretary for Finance and Economic Development George Guvamatanga in a letter to THL Business Rescue Practitioners (BRP) dated July 27, 2023, seeking clarity on the awarding of the bid to Kegara.

Kagera, a sugar manufacturing company in Tanzania, won the bid to acquire the assets of the entire sugar division of Tongaat Hulett Limited in South Africa together with the investments in Zimbabwe, Mozambique and Botswana, ahead of 70 other bidders.

THL and Tongaat Hulett Development Proprietary entered into a voluntary business rescue process (BRP) in October last year, after its board found the company to be in financial distress. Its units in Botswana, Mozambique and Zimbabwe sugar continued trading normally as they were not financially distressed.

Terris Sugar Limited-a South Africa-based sugar concern, has also raised red flag around awarding the bid to Kegara, a company that it claims to have little capacity and expertise compared to investors whose bids were rejected.

“Tongaat enjoys a number of privileges and the basis for bidding was based on the relationship we have.

Given the circumstances we have sought clarity from the Business Rescue Practitioner to explain why our bid was not even considered. We are just hoping the matter will be resolved amicably otherwise Government will be left with no option, but to withdraw some of the privileges,” said one source who requested not to be identified citing protocol issues.

“To have our bid not even considered is something the Government will not take lightly. Tongaat has a number of undertakings it has made and it is now unclear whether the new investors will be able to fulfil these undertakings.”

Said another official: “Given the relationship between Tongaat and the Government, we feel if our bid was considered, we were going to make it. The Government was even prepared to find a partner with expertise in the sugar planting and milling business.”

No official comment could be obtained from the Government by the time of writing.

However, in a letter to Tongaat seeking clarity as to why the SWF bid was not considered Zimbabwe’s bid, Guvamatanga said: “We note the media update on July 21, 2023, stating that BRP had selected Kagera Sugar Limited as the preferred strategic equity partner to acquire Tongaat’s operations.

“While we are aware that BRP had received other offers, we are concerned that the Sovereign Wealth Fund of Zimbabwe was not allowed to participate as a part of a consortium or have any transparency into the process by which BRP selected Kagera in spite of the various discussions.”

Guvamatanga said the basis for bidding on the assets of Tongaat was premised on solid relations between the Government and the company. He said Tongaat and the Government have a “longstanding relationship”, one that includes strategic investments the latter had facilitated. Guvamatanga said the Government also assisted with water rights, which are crucial to Tongaat’s operations.

In addition, Tongaat is intricately linked to Zimbabwe’s capital markets through the listing of Hippo Valley Estates on the Zimbabwe Stock Exchange. But the relationship is more than just commercial and the Government partnered with Tongaat to provide land for sugar farming, “creating a bond with Zimbabwean farmers.”

“When the fund made its offer to purchase Tongaat’s Zimbabwe assets, it was drawing on this close relationship, being cognisant of the fact of the aged plant and equipment and as regards the biological assets, the need to replace them, planting new, higher-yielding varieties,” said Guvamatanga.

“The fund has the ability to acquire all of the necessary approvals, especially the water and land rights, and it can continue the work started with Tongaat in the community. In addition, the fund is an ideal partner for any assets in Botswana, Mozambique, and South Africa.

“These countries border Zimbabwe and have been long-time trading partners,” he added.

Guvamatanga said the SWF made a “fair offer,” had funds to acquire the assets, and met the deadlines to submit the bid. He expressed concern about the BRP selection criteria after choosing a partner who “appears not to have operations in any of the countries where Tongaat has assets.”

“ . . . No information on price or whether Kagera plans to honour the commitments that Tongaat has made to Zimbabwe. Kagera has not laid out any plans, other than a desire to bring efficiencies. It is unclear if Kagera is willing to dedicate the necessary financial resources.”

Terris has also queried the manner in, which the bids were evaluated. It said Kagera’s successful bid was predicated on 80 percent of its funding being raised from the IDC (South Africa) or with the IDC’s assistance to raise the required funding.

However, Terris, whose bid was also backed by the IDC, was allegedly advised that funding from the IDC was not accepted. It was asked to provide proof of funding of R3,1 billion.

“We understand that the IDC has supported the BRP’s decision to select Kagera as a strategic equity partner,” said Terris in a letter to the IDC dated August 9. “We would want to know if the IDC had, prior to its decision of support, conducted due diligence on Kagera and its operations in the same way that the IDC did on Terris.

“We have recently learnt that IDC staff members only recently visited Kagera’s operations for the first time, which was post the IDC’s board approval or consideration of Kagera’s status as a chosen SEP.

Please further confirm if indeed it is the case that at the time of bidding, the IDC had committed or offered to assist Kagera to raise more than R2 billion from its own funds or from other institutions.

“ . . . If so, on what conditions . . . why the IDC would do so only for Kagera using Government funds.

“We also request to understand how it came to be that the IDC which was supposed to be a neutral party up to that point, only assisted one bidder, especially one with no local representation nor the necessary experience in complex sugar plantations, milling, working with multi mills and diverse growers,” it added.

Responding to Terris, the IDC company secretary, Maseapo Kganedi, said the group had requested “a comprehensive brief from management.” Kagera had partnered with Almoiz, which owns several sugar plantations, five milling plants, and an out-grower base of 40 000 farmers. It planned to spend R4 billion rand to recapitalize the operations.-ebusinessweekly