Tongaat Hulett Developments (THD), in business rescue with its parent Tongaat Hulett Limited and the owner of extensive property interests in KwaZulu-Natal, will only pay its creditors who are owed some R7.7 billion, about 7 cents in the rand if its business rescue plan is successful.
Tongaat’s business rescue practitioners (BRP) said in an update Friday this pay-out to secured creditors was better than a forecast 2.5 cents in the rand they would get if THD went into liquidation. Unsecured creditors were unlikely to receive anything, they said.
“The reality is THD’s liabilities significantly exceed the value of its assets…We realise this is a very difficult situation. We have spent a significant amount of time since business rescue commencement evaluating opportunities where construction activities or property development projects could potentially continue with the support of THD’s post-commencement financiers. Discussions with these affected stakeholders are at an advanced stage,” the BRP’s said in a statement.
Tongaat Hulett Limited’s lenders have claimed about R7,2bn against THD, which, with other business rescue claims against THD, amounts to about R7,7bn in total, the BRP’s said.
The BRP’s on Friday published the business rescue plans of THD, with the business rescue plans of Tongaat Hulett Limited and and fellow subsidiaries Voermol Feeds and Tongaat Hulett Sugar SA to be released at the end of this month.
The BRP’s said in a statement that the THD business rescue process aimed to provide opportunities for continued land development for third-party purchases, offer opportunities to certain contractors to continue with projects and retain employment opportunities.
The business rescue plan also aimed to avoid impacts on the KwaZulu-Natal property market, address certain environmental risks as well as mitigate the risk of unfulfilled infrastructure obligations. Creditors vote on the THD business rescue plan on May 30, 2023.
THD was historically dependent on Tongaat Hulett Limited for access to working capital facilities and its financial stability was inextricably linked to the financial stability of Tongaat Hulett Limited.
“Consequently, all material assets of THD were secured in favour of secured creditors (the THL lenders). .. this means that as a result of the guarantees given by THD to the lenders that funded THL, the direct liabilities of THD (being about R400m) increased by the guarantees given to the THL lenders (the extent of such claims being ±R7.2 billion), as well as post-commencement finance advanced to date (being ±R100 million),” the BRP’s said.
“Therefore, due to the magnitude of THD’s liabilities, the net free estimated cash that can be released from the THD rescue will only be about 7% of the R7,7bn claims …unfortunately this means that there is no likelihood of THD paying distributions to unsecured creditors,” the BRP’s said.
Since entering business rescue in October last year, THD continued to operate on a limited basis with the support from lenders of about R100m.
Operating costs were reduced, with cost cuts and efficiency improvement initiatives continuing.
Where there is a direct short-term benefit to THD, the BRPs said they would aim to bring existing property developments to partial or final completion to optimise net sale cash inflows and/or to avoid payment demands for bonds or guarantees.
BUSINESS REPORT