Nssa, Tongaat in legal showdown

Tinashe Kairiza

THE National Social Security Authority (Nssa) is seeking legal recourse following allegations of gross financial impropriety and corporate malfeasance by Tongaat Hulett in the affairs of Hippo Valley Estates (Hippo Valley), which have left the local sugar milling firm on a knife edge, and on the verge of retrenching 400 workers locally, it has emerged.

Across its subsidiaries in the region, Tongaat Hulett intends to shed 5 000 jobs, including the 400 at Hippo Valley.Tongaat Hulett, which is battling to extinguish a US$814 million (R13 billion) debt stock in neighbouring South Africa holds a 50,3% stake in Hippo Valley through its wholly owned investment vehicle Triangle Sugar Limited (TSL) while the remainder of the shares are held by Nssa, Old Mutual and other players.

As reported by the Zimbabwe Independent last week, the debt-ridden South African sugar milling and refining behemoth with interests in Mozambique, is frantically manoeuvring to dispose key assets held under Hippo Valley to service its huge South African debt.

However, Tongaat Hulett, which was expelled from the Johannesburg Stock Exchange (JSE) last year at the height of its corporate governance woes only to be readmitted to the bourse in February, has faced fierce resistance from Hippo Valley minority shareholders who say their interests in the local entity are compromised.

In Mozambique, Tongaat Hulett announced in January that it was going to exit that market by stopping its operations at two key business units, namely Mafambisse and Xinavane, in the process shedding 3 500 jobs. In a bid to save thousands of jobs and downstream industries, the Mozambican government swiftly intervened by identifying a potential suitor to inject fresh investment capital into the business.

As part of its debt settlement plan, which cuts across all its operations in the region, Tongaat Hulett intended to raise no less than US$10 million (R159 million) from the disposal of a prime game park held by Hippo Valley to settle its US$814 million (R13 billion) debt.

The embattled South African sugar milling and refining giant, which has since sold off its starch operations in South Africa, plans to have paid R5 billion (US$304,1 billion) by March 2021 as part of its debt settlement scheme.

Documents shown to the Independent by a senior Nssa staff this week reveal the authority, seeking to protect its interests in Hippo Valley as a minority shareholder, sought legal advice from a Harare-based law firm.

The legal documents, among other outcomes, sought to determine whether Tongaat Hulett violated the rights of Nssa in Hippo Valley.

“We are instructed to render an opinion and advice on the consultant’s (Nssa) minority shareholder status at Hippo Valley Estates Limited and the remedies available to consultant as a minority shareholder therein,” the legal opinion dated January 23 reads.

“Over the past 15 years Hippo Valley Estates has been unable to declare a dividend and the company only managed a dividend in 2018. A number of developments have taken place at the company in recent years and most of which have the resultant effect of compromising the position of minority shareholders, of which consultant is an interested part as a shareholder.”

Nssa marketing and communications executive Tendai Mutseyekwa, however, denied that the entity sought legal counsel, but highlighted that a Nssa team had recently been deployed to Hippo Valley to assess its investment.

At the heart of the legal opinion proffered by the law firm, the documents show, is that Tongaat Hulett — leveraging on its status as a majority shareholder in Hippo Valley — unduly used its position to advance its interests at the expense of Nssa, among other minority shareholders.

The document reads: “We further understand that the major shareholder has been directly involved in the day-to-day management of the company such that the operations of the company have been swayed to serve the interests of the majority shareholders ahead of the minority shareholder interests of which consultant is a minority shareholder.

“It is our further understanding that notwithstanding that Tongaat Hulett Limited (THL) is not a direct shareholder in Hippo Valley Estates but holds same through TL, it has exerted a lot of control on the operations of Hippo Valley Estates and key decisions have been imposed upon the management to the extent that board members who were not agreeable to some of the compromised positions have been removed and are in the process of being removed.”

At the time of going to print Tongaat Hulett investor relations executive Michelle Jean Louise had not responded to questions on the concerns raised by Hippo Valley minority shareholders.

Tongaat Hulett’s untenable debt situation has already claimed the scalp of Hippo Valley ex-finance chief John Chibwe.

The legal opinion states that Hippo Valley expropriated the local entity’s export earnings and channelled them towards “payment of Tongaat Hulett’s dividends in Triangle”.

It further states that Tongaat Hulett prejudiced Hippo Valley minority shareholders through levying a 2% technical fee on its gross sugar sales in Hippo Valley Estates.

In 2010, Tongaat Hulett entered into a Technical Assistance Agreement (TAA) for the provision of technical assistance the sugar milling company through Tongaat Hulet Engineering, a division of the South African firm.

The legal opinion reads: “The major shareholder Tongaat Hulett Ltd (“THL”) was extensively involved and meddled in the company’s day-to-day operations largely to advance the selfish interests of the major shareholder.

“This involvement significantly impaired the smooth functioning of Hippo Valley Estates Ltd management as it undermined the authority of the board and management’s fiduciary mandate. This situation was further compounded by the intolerant disposition of the major shareholder to dissent or to divergent views on accounting and other matters key to the business of the company.”

The legal document further states that Tongaat Hulett failed to remit Pay-As-You-Earn (Paye), “deliberately” increased sugar prices, clandestinely sought to dispose a game park held by Hippo Valley and the unprocedural dismissal of the finance director (Chibwe), among a myriad of corporate governance irregularities, through which, it is alleged, the South African sugar giant imperilled the interests of Nssa, and other minority shareholders.