Tongaat's bitter capital raise

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Tongaat's bitter capital raise

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Published Date: 2021-11-18 | Source: INCE|Community | Author: The Finance Ghost

Tongaat's bitter capital raise

Due to social unrest in KwaZulu-Natal earlier this year and other operational challenges, Tongaat's R450 million in proceeds from the disposal of the starch business to Barloworld has been used for liquidity purposes and not to reduce debt as was originally hoped.

This leaves the group with a balance sheet that has a hole in it. As it turns out, a R4 billion hole that will be partially plugged by a Mauritian investment holding company called Magister Investments. The market cap of Tongaat is only worth R1 billion, so to call this rights offer "dilutive" would be the understatement of the year.

This is just a clever way for the Mauritian company to take control of Tongaat without having to make an offer to all shareholders. By partially underwriting the rights offer (up to R2 billion in exchange for a 1.5% fee), and with a condition that Magister's stake cannot exceed 60% after the rights offer, the Mauritian entity is likely to move from a stake of 0.15% to a controlling position.

Shareholders representing 38.6% of Tongaat's issued shares have either provided irrevocable commitments or letters of support for the transaction. This gives an idea of the state of the balance sheet.

There's a harsh lesson here for punters on the market. Tongaat's share price mysteriously started running on 8 November. A cautionary announcement only came out on 10 November, two days before the share peaked at R9.84, up a whopping 32% in the space of a week.

After closing yesterday at R7.38, 25% down from that peak, some people have learnt the hard way that chasing rumours and positive momentum doesn't always work. I wrote back in July in InceConnect that a capital raise could be on the horizon, so the risks were clear to those willing to take a proper look at the company.





1 Comments

Arne 1 week ago

Awesome coverage purple Ghost.. & hv to say Dave Hazelwood is probably going to claim this new insights despite telling the world & other galaxies it was a certain 10 bagger



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