A group of South African minority shareholders is coming together to push for a change at debt-laden sugar producer Tongaat Hulett, its leader told Reuters, building on previous efforts by Ascendis Health.
The move signals a further rise in minority shareholder activism in South Africa, after retail investors pushed Ascendis into an asset sale rather than a rights issue to avoid bankruptcy protection earlier this year.
Harry Smit, the guesthouse owner who spearheaded the campaign at Ascendis, leads a group that is now taking on one of South Africa’s largest sugar producers, which has been struggling with massive debt amidst a accounting fraud discovered in 2019.
The group plans to increase its stake in Tongaat Hulett to 5% by the end of September, Smit told Reuters, spending around R50 million.
It will dilute up to 30% of the stake of some of its members in Ascendis to increase stake, he added.
Once you’ve reached that 5% stake, which Smit says is necessary to persuade management to participate, the group will raise issues related to governance and executive pay, along with other areas that it declined to disclose.
Under the plan, which has not been previously reported, the group will also form a company to further increase its stake in Tongaat. “The intention is much more than 5%,” he said.
The company, in an emailed response to Reuters, said it regularly engaged with stakeholders and encouraged minority shareholders to contact the company “to allow us to provide clarity where necessary.” He said he stayed focused on implementing his existing debt reduction plan.
Before becoming an activist shareholder, Smit ran a boarding house in a seaside town about 250 miles from Cape Town. After being forced to close his doors due to the Covid-19 pandemic, he instead devoted his time to his small investments on the Johannesburg Stock Exchange.
Farm produce farming and processing company Tongaat has taken steps to clean up its books after revealing in 2019 that revenue, earnings and assets had been overstated in previous years.
Tongaat, which also owns a huge commercial land bank, brought in a new administration, reduced debt and sold some assets to help its recovery.
It has lost nearly 90% of its value in the last two and a half years and will not pay dividends until its debt reaches a “sustainable level,” it said in its annual financial statement released last month.
It reported in July that its current liabilities – those to be paid within a year – exceed its current assets by R5.72 million, and that “there is a material uncertainty that may cast significant doubts on the ability of the group and the company to continue as an active concern. ”
Other problems are beyond its control, investors said.
The recent riots in KwaZulu Natal, where the company owns around 2,000 hectares of prime land that is a major driver of its valuation, has raised the risk premium for real estate transactions in the area.
That has made it even more difficult for Tongaat to ditch the asset to pay its installments, said Gary Booysen, a portfolio manager at RandSwiss.