Tanzania’s Kagera sugar to acquire South Africa's Tongaat

Tongaat Hulett Limited (THL), a leading sugar producer in Southern Africa, has chosen Tanzania's Kagera Sugar Limited (KSL) as the preferred Strategic Equity Partner (SEP) to purchase its sugar assets. On July 21, 2023, the company announced that KSL would acquire all of Tongaat's sugar businesses in South Africa, Zimbabwe, Botswana, and Mozambique. This development has caught key players in the industry by surprise, raising many questions on whether the appointed partner has the financial muscles to revive the troubled businesses of Tongaat Hulett, a sugar and property operator. The miller must have strong financial support to emerge as the best bidder out of 70 companies initially interested in partially/fully acquiring Tongaat assets.

Kagera Sugar is part of the Super Group of companies in Tanzania, the country's largest sugar producer, and owns sugar assets in DRC, Tanzania, and the Middle East. According to Tongaat's business rescue practitioners (BRPs), KSL was the most viable option based on the group's sound financial status, solid track record, and exposure to external sugar operations in the DRC and the Middle East, which would provide pertinent knowledge to help in the turnaround and restoration of THL's sugar businesses.

The big question is: What does this decision mean for the sugar sector? Will Kagera successfully restore Tongaat's businesses? Whereas Kagera Sugar is less known in the region, it is the third-largest sugar miller in Tanzania, with an average daily crushing capacity of 2500TCD. The company, however, is excited to expand its reach beyond its borders and gain a foot in its vision to become the leading sugar producer in Africa.

Tongaat has been battling to get back on its feet since 2019 after an accounting scandal that revealed a mountain of debt in the group's South African operations. In the 2018 financial statement, the firm's profits were overstated by 239%, while its assets were 34% over. This saw the removal and replacement of the company's top management involved in fraudulent activities that put the firm into piles of debt. Under new leadership, the firm began a restructuring strategy that saw the sale of some of its assets, reducing its debt by about R6.6 billion (USD 375 million) from R11.7 billion (about USD 666 million).

Despite this progress, the group needed more funding to clear the remaining debt balance. The debt level of its South African sugar operations was more than its asset values prompting Tongaat to enter business rescue. However, the firm's sugar investments in Botswana, Zimbabwe, and Mozambique were not financially distressed; therefore, they remained unaffected.

It is now up to Kagera to bring the giant South African sugar firm back to speed. This would greatly relieve the small-scale cane growers, who have suffered immense losses since the firm went into administration.