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Tongaat Hullett will sell its starch business to a subsidiary of logistics company Barloworld for R5.35 billion, which will help reduce its debt.
The sugar producer on Friday afternoon issued a notice to shareholders indicating that the starch business would be sold to KLL Group, a wholly-owned subsidiary of Barloworld. This announcement comes after it announced it was looking for a buyer earlier this month.
According to the group's interim results for the six months ended September 2019, the division's operating profit was R306 million.
A trading suspension on the group's shares was lifted in February this year - this after it requested a suspension when it discovered accounting irregularities that resulted in inflated assets and profits. The probe lead to the restatement of the group's September 2018 results, Fin24 previously reported.
Tongaat Hullett's share price, which opened at R3.21 on Friday, closed 1.58% weaker at R3.11.
Its starch business, established in 1919, is one of the largest wet millers in sub-Saharan Africa and operates four plants across the country. It manufactures modified and unmodified starch as well as a powdered glucose and agri-products.
In terms of the agreement, all jobs in the starch business will be retained with the transfer of employees' conditions of service to remain intact, the group said in a separate statement on the transaction.
"This was a compelling offer for our Starch business, which the board reviewed in detail," said Tongaat Hullett CEO Gavin Hudson.
"Our number one priority is to ensure the long-term sustainability of Tongaat, and a key element of this is paying down our debt as quickly as possible.
"Our agreement is to reduce debt by R8.1 billion by March 2021 and we have already met and exceeded the first debt repayment milestone agreed with our lenders," Hudson said.
- READ | Sugar producer Tongaat Hulett expects shares to resume trade on Monday after 7-month suspension
The group is considering a number of options to reduce its debt, apart from selling non-core and core assets, other options include accelerating operational efficiencies, and a potential strategic equity capital raising initiative, Hudson said.
"The sale of the Starch business will allow us to make excellent progress on paying down our debt, and that in turn will give us breathing room and free us up to put measures in place to grow the business. The sale positions us for longer-term sustainability and value creation for our shareholders," he added.
"Disposals will be considered at the right price and right time. We are focused, but in no hurry," he said.
The transaction is subject to shareholder approval.
