Bad medicine goes down as Tongaat Hulett drops 21%
Share price at a 25-year low on the back of a liquidity crisis caused by its high debt levels and interest costs
Tongaat Hulett’s share price plunged as much as 21% on Tuesday, its worst level since 1993, as speculation continues in the market as to how the sugar producer will deal with its liquidity crisis.
Tongaat’s market value plunged by nearly a fifth on Friday after the sugar producer said headline earnings in the year to end-March will probably fall by at least 250%.
It is expected to meet with lenders this week, having said that due to its high debt levels and interest costs, “any reduction in operating profit has a larger impact on earnings”.
The market is likely pricing in a possible rights issue, or an asset sale, although the former was more likely, said Gryphon Asset Management portfolio manager Casparus Treurnicht. Regardless of how Tongaat plans to recapitalise its business, it is going to be bad news for shareholders, said Treurnicht.
The company is also facing domestic headwinds, such as the recent increase in the sugar tax. Last week finance minister Tito Mboweni raised the sugar tax by 10%, from R2.01/g to R2.21/g for products in excess of 4g of sugar per 100ml.
In Mozambique, Tongaat said high levels of imports have prompted the group to export sugar from the country at lower prices, adding that cane valuations in both SA and Mozambique haev been lowered.
Tongaat said it has not sold any land parcels since September 2018, and that “a thorough review” of its land portfolio was underway, it said in its statement on Friday.
The company also has a newly appointed CEO, Gavin Hudson, who started on February 1. The company said on Friday that priority areas for intervention include streamlining operations; rationalising, where appropriate; and improving business performance and accountability.