Thousands of jobs hang in the balance and the future of the local sugar sector is uncertain after troubled Tongaat Hulett yesterday went into business rescue.
Tongaat, the sugar and property group, is a major regional sugar producer with operations in Zimbabwe, Botswana, Mozambique and South Africa. With more than 26 000 employees, Tongaat also provides a livelihood to more than 20 000 cane growers.
While Tongaat had whittled its debt by more than R6.6 billion from a high of R11.7 billion after an accounting scandal in 2019 brought the firm to its knees, the sugar producer said yesterday it remained unable to service its residual debt.
Former Tongaat Hulett executives, including former CEO Peter Staude, face fraud charges worth more than R3.5 billion.
Chris Logan, a shareholder activist and Opportune Investments owner, said Tongaat Hulett’s South African sugar operations had been uneconomically viable for more than a decade, but the fraud at Tongaat had hidden this.“
The attempts by the company to come right had been "too little and too late," he said, adding that sugar had been massively loss-making under Straude’s regime, which covered it up.
“The problem with SA sugar is its old mills. KwaZulu-Natal is not the greatest area for sugar cane and has to rely on rain and also needs capex investment. This leads to sugar yields being below average,” he said.
“The good news is there is apparently a sugar shortage, there is less dumping, and you need Tongaat,” Logan said.
Yesterday Tongaat said its South African turnaround efforts had been hampered more recently by the Covid-19 pandemic and the riots and floods in KwaZulu-Natal. Operational headwinds were encountered in the form of sugar loss at the refinery and poor milling performance, which revealed inadequate historic plant maintenance.
In addition, at the end of the 2022 financial year, the working capital requirements of the South African sugar operation increased significantly with slower-than-expected sugar sales and a normalisation of inventory levels post the refinery loss, Tongaat said.
With Tongaat now in business rescue, the future of the sugar sector in the country is not clear.
The Department of Agriculture yesterday had failed to comment by the time of going to print.
The South African Sugar Association had also failed to comment by the time of going to print.
In August, the SA Canegrowers told Business Report: “There are a number of challenges that threaten the local industry’s ability to maintain supply and contain costs, none of which will be solved by imports. These challenges include ongoing operational issues at the mills following Covid-19 and devastating policies like the health promotion levy. These problems are what need to be critically addressed to protect consumers and safeguard the industry and the 1 million livelihoods it supports,” it said.
The FAO Sugar Price Index, produced by the Food and Agriculture Organization of the United Nations, averaged 109.7 points in September, down 0.8 points (0.7 percent) from August, marking the fifth consecutive monthly decline and reaching its lowest level since July 2021.
However, Anthony Clark, an independent trader at Small Talk Daily, said sugar imports were easy to get, despite South Africa’s tariffs to keep out global sugar and the sugar tax, which impact the domestic industry.
“But, as you know, localisation of products is always preferable for food security,” he added.
He said there was enough sugar supply coming in from southern Africa and imports to make up any needs South Africa had.
Clark said: “In Tongaat’s case, and also some of the other sugar companies, they were looking to generate biomass using the waste product from the production of sugar to produce heat and energy to feed back into the grid, but Minister Mantashe quashed this idea many moons ago. It's only lately the cap has been raised on independent power. That may be some salvaging play for any remaining sugar firms and biomass firms. But they have all been so dramatically weakened…
“With Tongaat, it might not a viable issue and after the Rudland family not having succeeded with Tongaat (rights issue), and the shareholders unwilling to lend more money to a sinking ship, I would wonder if the Department of Agriculture would have to step in – one, to protect jobs, and, two, to protect a large source of domestic supply,” he said.