Tongaat Hulett Limited confirmed today that it would sell its Starch business to Barloworld Limited for an enterprise value of R5.35 billion.
The deal will have a significant impact on reducing Tongaat’s debt.
In terms of the agreement, all jobs at the Starch business will be retained, with the transfer of employees’ conditions of service intact.
Tongaat CE Gavin Hudson said: “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. Our agreement is to reduce debt by R8.1 billion by March 2021 and we have already met and exceeded the first debt repayment milestone agreed with our lenders.
“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 both core and non-core assets. Other debt-reducing activities include accelerating operational efficiencies, and a potential strategic equity capital raising initiative.
“The sale of the Starch business will allow us to make excellent progress on paying down our debt, and that in turn will give us breathing room and free us up to put measures in place to grow the business. The sale positions us for longer-term sustainability and value creation for our shareholders.”
“Debt reduction is an important part of our sustainability strategy, but by no means the only one. We have put in place a number of strategic business partnerships to raise cash and/or step-change the company’s transformation initiatives and build strong partnerships. These include:
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Within our SA farming operations an initiative was launched through which Tongaat is exiting its direct sugarcane farming activities in SA. As part of this initiative, Uzinzo Sugar Farming, a large-scale black-owned sugarcane farming enterprise was created to farm a portion of this land.
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Within our SA milling operations, we are creating an initiative aimed at establishing a well-structured competitive sugar business on the KwaZulu-Natal North Coast that mills, refines and sells sugar and associated products, with equity held by, amongst others, farmers.
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We are re-strategising the property and land business by creating a special purpose vehicle to facilitate diverse investment partnership opportunities and through this, deliver a stable and sustainable long-term earnings platform.
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We officially launched project Kilimanjaro with the Zimbabwe government in November 2019. The project aims to increase productivity of land through the development of 4 000 hectares of new land for sugarcane farming for the benefit of 200 farmers.”
“The company is energised and motivated, with a human capital base that’s fit for purpose. We are well on the road to sustainability,” said Hudson.
Looking to the future, Hudson said: “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.”
Tongaat’s Starch division was established in 1919 and is one of the largest wet millers in sub-Saharan Africa, operating four wet milling plants located at Germiston, Kliprivier and Meyerton in Johannesburg, and Bellville in Cape Town. The mills have a combined total installed capacity to process more than 850 000 tons of maize per annum.
The Starch Business uses non-genetically modified maize, predominantly yellow maize, to manufacture high quality unmodified and modified starch as well as liquid and powdered glucose and agri-products for some of the largest companies in the food, industrial and animal feed sectors in the domestic and international markets.
The Starch Business is one of the largest producers of unmodified and modified starch, and glucose in Sub-Saharan Africa and enjoys a strong market position as the sole manufacturer of starch and glucose in South Africa. It supplies a significant proportion of the local market across a diverse range of industries, including paper manufacturing, alcoholic beverages, prepared foods and other food manufacturing and consumer end markets.
The sale to Barloworld is subject to shareholder approval and other conditions precedent.