Tongaat Hulett is a household name brand in South Africa having been around since 1891 as it is the leading sugar producer in the country which it has been for many decades. The company owned roughly 8000 hectares of prime developable real estate in the natal region mainly along the northern coast around Ballito to which has become a property hot spot with hundreds of high end residential properties having been developed since the late 1990's. This land was mainly agricultural and more precisely sugar cane fields which belonged to Tongaat Hulett.
When you used to drive up the Natal Northern coast prior to 1994 which i have done many times the entire region was sugar cane fields as far as the eye could see. Umhlangha Ridge which is now a residential suburb was all sugar and can remember running through these field in the early 1990's as part of my daily training. It is still hard to believe how the entire area has changed in such a short period of time.
The directors and owners of the company cashed in big time and sold of many of their cane fields and subsequently purchased land in Mozambique at a much cheaper rate. This was not the problem however as the problem was fraud or I think it is termed as irregular accounting by those directors to the tune of an estimated R12 billion which is around $800 million.
Just to give you an idea of who well this company was performing before the fraud took place these figures are from 2008. Not usre if this included land sale deals which were ongoing since the mid 1990's.
The Tongaat Hulett company was very large dominating the local sugar industry with roughly 40% of market share during their heyday. They own the 3 sugar refinery mills that service the sugar cane farmers and had most of the farmers tied up to supplying their mills. The mills they own are the biggest in the country and the only ones that refine white sugar. Business was really good and they were that dominant in the sugar industry so what could go wrong?. These days the dominance has waivered off and is sitting at around 27% so roughly 40% of their revenue has been lost.
The Mozambique side of the business is flying with a reported 70% market share and growing year on year. This however is a separate entity and is not included in the SA company side of things.
Greed was the problem and a company cannot take a $800 million hit when their business model relies on the farmers to supply their mills and then they pay the farmers. Once your remove the capital that pays the farmers you do not have a business as everyone relies on each other to make a living.
The business rescue plan that the company has been in for some time has failed to reach a positive out come and the next phase is to appoint liquidators who will over see the creditors being paid the money they are owed with most likely cents on the Rand. The farmers are the ones who lose here as they are the ones who are caught in the middle having supplied their sugar cane and not being paid.
The only value the company has today is the infrastructure being the 3 sugar refineries and whatever land they have not sold. The prime parts of their property portfolio have long been sold so these parcels of land remaining are nowhere near as valuable.
The big problem is the aftermath that this will create as over 1100 smaller farms and nearly 30 000 large sugar cane farms are now in trouble. There are roughly 240 000 people employed in the sugar cane industry in the Northern Natal region and another 150 000 providing some type of services so a total close to 400 000 and everyone is going to feel the fall out.
The plus side which there is one is that the refineries are still there and surely someone will come in and scoop up the pieces because this is a lucrative business run correctly. Everything is here for a turn key business and my mind is thinkin a Co Op type of set up where the farmers own and run the entire business. Why let some corporation grab the business when the farmers already have the knowledge of how this all works. Many of these farmers come from big money handed down over generations so the money is not the problem. The problem is will they be allowed to and will some government stooge try and grab this for themselves. Change and uncertainty is never great, but at the same time it does create an opportunity that was never there before.