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SA’s major starch producer sold to Barloworld

Tongaat Hulett Starch, the successful starch business of the troubled Tongaat group, will be sold to Barloworld for R5.35bn. in a move to reduce its R13bn debt.

Tongaat, which recently reported a headline loss of R314m for the six months to end-September, is selling assets to cut debt by R8.1bn by March 2021. The former blue-chip company also intends to ask shareholders for about R4bn in a rights offer.

The group said in a statement on Friday that jobs at the starch business would be retained, and the move would not affect employees’ conditions of service.

The business is one of the largest wet millers in Sub-Saharan Africa, operating four wet-milling plants at Germiston, Kliprivier and Meyerton, Gauteng; and Bellville, Western Province.

The mills had a combined total installed capacity to process more than 850,000 tonnes of maize a year.

The business, which increased sales 4.5% in the six months to end-September, uses maize, predominantly the yellow variety, to manufacture starch and liquid and powdered glucose and agri-products.

Customers include some of the largest companies in the food, industrial and animal feed sectors in domestic and international markets.

“This was a compelling offer for our starch business, which the board reviewed in detail. Our number one priority is to ensure the long-term sustainability of Tongaat, and a key element of this is paying down our debt as quickly as possible.

Strong cash generator

“Our agreement is to reduce debt by R8.1bn by March 2021 and we have already met and exceeded the first debt repayment milestone agreed with our lenders,” said Tongaat CEO Gavin Hudson.

Tongaat, which reported revenue of R8bn in the six months to end-September, previously described the starch business as a strong cash generator. It reported operating profit of R305m for the period, making it the second-largest contributor to operating profits, after Tongaat’s sugar business.

The business supplies industries that include paper manufacturing, alcoholic beverages, prepared foods and other food manufacturing and consumer end markets.

“We have said for some time that we would consider a number of opportunities to reduce our debt and stabilise the business, including the sale of core and noncore assets. Other debt-reducing activities include accelerating operational efficiencies, and a potential strategic equity capital-raising initiative.”

Hudson said that while debt reduction was an important part of Tongaat’s strategy, the company had other plans to improve its financial position. He cited its decision to exit direct sugar-cane farming in SA, the restructuring of its milling assets and plans to increase cane-growing areas in Zimbabwe by about 4,000ha.

“Tongaat Hulett is considering multiple options in terms of the potential sale of assets, with our main priority being to protect shareholder value while we honour our debt-repayment glide path in a responsible way. Disposals will be considered at the right price and right time. We are focused, but in no hurry,” he said.

The sale of the starch business comes days after the company announced the sale of its property in Umhlanga Rocks to JSE-listed property company Balwin Properties for R167m.

Tongaat share price gained 2.53% to R3.24 on Monday. Before its voluntary request to the JSE for its shares to be suspended, it closed at R13.21. It reached a record high of R169 in December 2014.

Source: BusinessLive.co.za

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