Tongaat Hulett’s Zim unit gears up for possible uncertainties in monetary and operating environment

Hippo Valley Estates, the Zimbabwe-listed unit of Tongaat Hulett – which is now under voluntary business rescue – could seek funding from local and regional banks to cover any financial requirements that may arise out of Zimbabwe’s highly uncertain monetary and operating environment.

Tongaat Hulett also controls non-listed Zimbabwean sugar producer Triangle Sugar Corporation, accounting for a bigger market share as well as exports from the southern African country.

The Zimbabwe Stock Exchange-listed Hippo Valley said yesterday that it continued to “navigate through the complexities” of operating in Zimbabwe as it pursued “value preservation strategies in the hyperinflationary” environment.

Although it anticipated it would sustain output of sugar this year, buoyed by an increase in the proportion of foreign currency revenue, the company is also gearing up for possible uncertainties in monetary and operating environment.

“Any potential impact of liquidity and currency distortions on the company’s working capital will be supported by both local and foreign currency funding facilities with reputable financial institutions,” Hippo Valley CEO Alex Mhere said yesterday.

The attractiveness to funding for Hippo Valley contrasts with recent misfortunes of its South Africa-incorporated parent company, Tongaat Hulett, which has been rocked by an accounting scandal and the resignation in January of its CEO, Gavin Hudson.

Tongaat Hulett is currently awaiting the release of its business rescue plan as it undergoes “complex” investigations and funding processes as well as meetings with affected groups.

Yesterday Tongaat Hulett issued a notice to affected persons to “show cause” for refusal of terms for “perfection by the lenders over the assets” of Tongaat entities.

Tongaat’s listed unit in Zimbabwe, Hippo Valley, produced 397 055 tonnes, representing 52.26% of industry supply for the nine months to December.

However, the company’s sales volumes faced “increased competition from sugar imports” during the period under review after Zimbabwe suspended import duty on the sweet commodity.

Export sales volumes were, however, 27% firmer at 40 246 tonnes – above the 2021 full year volumes of 31 607 tonnes – on account of an improved allocation under the US quota for imports. This “contributed to higher average export prices”, with the quota remaining “secure and has been consistently fulfilled” by the company.

Apart from stronger export sales and brighter prospects for the domestic market, Zimbabwean sugar producers have been afflicted by production constraints. Tongaat’s Hippo Valley unit suffered breakdowns at two production lines during the period, resulting in early closure of the affected facilities.

“Repair work is in progress to ensure the line will be operational in the upcoming season. In order to crush the remaining cane, the milling season was extended to December 29, 2022 to accommodate the reduced production capacity. In addition, 27 001 tonnes of cane had to be diverted to the Triangle sugar mill for crushing,” Mhere said.

StarAfrica Corporation, which refines raw sugar into final products, has also had to shut down its plant, it said this week, blaming rising raw sugar prices and unfavourable trade terms.

“We have closed the Goldstar Sugars Harare refinery with effect from Monday, February 13, 2023 until further notice. The closure is a result of raw sugar price increases taken by our supplier on February 9, 2023, which makes it difficult for the company to produce and sell refined sugar at a competitive and viable price as well as onerous trading terms, which have constrained raw sugar supplies to the refinery,” the company said in a notice.

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