134-Year-Old Tongaat Hulett Faces Liquidation, Putting SA Sugar Industry on the Brink

Tongaat Hulett’s liquidation would put South Africa’s sugar industry on the brink of collapse, with spillover effects that could crush any hope of faster economic growth.

Lying at the heart of South Africa’s sugar industry, Tongaat Hulett has the capacity to mill two million tonnes of sugar and indirectly supports tens of thousands of jobs.

The Problem

While the company was marred by an accounting scandal in 2019, the reasons for its potential liquidation are more fundamental. The local sugar industry simply cannot compete with cheap imports from Asia.

Jannie Durand , CEO of Remgro, told 702 that sugar producers cannot sustainably sell sugar at current market prices, which have been driven down by cheap imports.

“At current sugar prices, they cannot make money. The mills are not even running. The growers are struggling. It is at a tipping point at the moment.”

“The problem is not that we are not an efficient producer of sugar in South Africa. We convert sugar very efficiently, but we are getting flooded by cheap imports out of India and Brazil.”

Producers in those countries are subsidised by their governments, enabling them to produce sugar at significantly discounted, unsustainable prices. In South Africa, sugar producers receive no subsidy.

The Solution

Durand called on the government to step in and save Tongaat Hulett by protecting the broader industry through tariffs on imports or subsidies for the local sector.

“We are very supportive of tariffs on imports. It can be seen in what is playing out in KwaZulu-Natal with Tongaat Hulett. They are a competitor, but it is not a good thing if they go into liquidation. About 200,000 people depend on the sugar industry in that province and, as we speak, they cannot make money.”

The History

Founded in 1892 , Tongaat Hulett has become one of the most iconic companies in South Africa. Named after the uThongathi River in KwaZulu-Natal, the company operated three mills with the capacity to crush more than 4.8 million tonnes of cane a year.

These mills no longer run at full capacity, largely because of cheap imports and declining sugar consumption.

Tongaat Hulett also operates in Botswana, Mozambique, and Zimbabwe, supporting close to half a million livelihoods.

The Accounting Scandal

The company’s collapse cannot be separated from the accounting fraud scandal that emerged in 2019. Following the fraud’s revelation, the company suffered a disastrous downfall, with around R12 billion in shareholder value being destroyed.

This pushed Tongaat Hulett to enter voluntary business rescue in 2022.

The Failed Rescue

A formal turnaround plan was adopted in January 2024, involving Robert Gumede’s Vision Group consortium. The Vision Group had agreed to acquire R11.7 billion of the company’s debt.

However, Vision introduced new demands and conditions during negotiations. Business rescue practitioners concluded that there was no reasonable chance of saving Tongaat Hulett and applied for its liquidation.

The Government’s Response

The Department of Trade, Industry, and Competition has since said it would oppose the liquidation in court. It does not have the power to stop the liquidation, but it can make a case against it.

“It’s most unfortunate that the Vision business rescue plan has been allowed to fail,” Gumede told Bloomberg. “However, Vision shareholders are still committed to saving Tongaat South Africa.”

The Bottom Line

A 134-year-old company. Two million tonnes of sugar. Two hundred thousand livelihoods. A flood of cheap imports. An accounting scandal. A failed rescue.

Tongaat Hulett is on the edgeand the entire sugar industry is holding its breath.

{Source: DailyInvestor}

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