Small-scale growers will be paid in full first, while commercial and other growers will receive payments in stages.
For illustrative purposes. Picture: iStock
Tongaat Hulett has delayed part of its August cane payments to growers as the sugar producer battles liquidity constraints, saying the current situation has forced it to split the R675 million payout into four tranches.
Small-scale growers will be paid in full first, while commercial and other growers will receive payments in stages, with the final tranche scheduled for 14 September.
This comes as Tongaat Hulett’s business rescue practitioners finalise a deal with the Industrial Development Corporation (IDC) and Vision Investment to save the cash-strapped sugar giant.
Tongaat Hulett has limited money
In a letter to growers, Tongaat Hulett CEO Gavin Dalgleish said the company remains committed to meeting its obligations to them. Still, he said the company has to adjust the August cane payment dates temporarily.
“Tongaat Hulett remains committed to meeting its obligations to growers and recognises the importance of predictable payment arrangements in supporting farming operations and the broader sugar value chain. Unfortunately, current liquidity constraints require a temporary adjustment to the timing of a portion of the August cane payment.
“The liquidity pressures experienced by the business have been driven primarily by lower-than-anticipated cash inflows resulting from depressed domestic sugar sales. This is largely attributable to the continued influx of imported sugar into the South African market, which has adversely impacted local sales volumes and cash collections.”
New payment schedule
Dalgleish said the company has been actively pursuing various funding initiatives to support its working capital requirements; however, they have not been successful so far.
“At this stage, however, no additional funding relating to the proposed facilities under discussion with Vision Investments or the IDC has been approved or made available, which is unlikely to be made available before closing of the Vision transaction contemplated in the business rescue plan, and accordingly no such funding is available to fund the August cane payments,” he added.
Best way forward
Dalgleish said the new payment schedule is the best way to enable the business to manage available liquidity while preserving operational stability and supporting continued milling and production.
He remains hopeful that once the Vision transaction is concluded, additional facilities will be made available through its banking partners. Should the transaction be completed in time, Tongaat Hulett might be able to accelerate the payment plan.
“Closing and the availability of these facilities remain subject to conditions outside the company’s control, and no assurance can be given in this regard. We will confirm the position to growers as soon as it is settled.
“In arriving at this arrangement, management has taken every step reasonably available to it to limit the impact on growers. Grower obligations have been placed ahead of discretionary expenditure across the business, small-scale growers are being paid in full and first, and the deferral has been confined to the shortest period our cash position permits, with the full amount owing settled within September rather than carried into a later cycle.”
Regret
Dalgleish said the business has also intensified its focus on collections, domestic sales recovery and securing additional liquidity.
“We recognise and regret the impact that this adjustment will have on growers. The business remains focused on maximising cash generation, improving sales performance and securing additional liquidity support, while continuing to engage with relevant industry stakeholders.
“We thank growers for their continued support and patience during this challenging period. We will communicate any further material developments regarding payment arrangements, including whether additional funding becomes available.”
