Fund seeks to bolster regional sugar industry

The Fund for Sustainable Sugar Industry Development in Africa (FSID), a private fund established by US-based private equity firm Lusitania Investment Capital (Lusitania) and its financial partners, has secured R18.8-billion to invest in strategic partnerships within the sugar industry and to enhance the South African Development Community (SADC) sugar industry by the end of the 2024/25 fiscal year.

Lusitania, through the FSID has reserved investments amounting to R9.5-billion in Angola and R6.6-billion in Mozambique, which includes the acquisition of Tongaat Hulett’s Mozambican business, its liabilities and debts.

A press release published in October indicates that the FSID aims to improve the sugar industry's success in Africa by promoting the cultivation of high-value commodity crops, using sustainable food production and more efficient methods.

The fund aims to encourage innovation in the industry and create investment opportunities that complement and strengthen the value chain. Ultimately, the fund seeks to increase the industry's equity value by creating, consolidating and expanding its presence in the market.

When asked about formal contacts with Tongaat Hullet’s board, Luisitania and FSID representative Luis Revés stated that Lusitania's initial contact with Tongaat was made in December 2021, when it proposed a cash offer of R3-billion to R4.2-billion, backed by guarantees from Tier 1 banks in the US and Europe. There were numerous formal contacts, letters, expressions of intent, and offers to the presentation of formal guarantees in the two years since.

Tongaat Hullet’s business rescue practitioners (BRPs) were aware of Lusitania’s proposal, and Tongaat and Lusitania sources confirmed that it was rejected in June 2022, without any further explanation.

“We have closely followed the developments related to the group’s business rescue, including the moratorium on their sale or marketing of the African subsidiaries individually placed by Industrial Development Corporation, the selection of the Tanzanian strategic partner, and other potential bidders.

“We believe it is time for the creditors to consider other paths that could add more value to the company and revitalise the South African sugar industry. It is interesting to see that other proposals are financially better than the one selected by the BRPs, but they are not being taken into consideration.”

Revés added that Lusitania believes that the operation will benefit both parties as “it will be a substantial financial income for [Tongaat Hulett’s] South African operations, its liabilities, and the restructuring plan, while significantly reducing the current group’s debt”.

At the last coordination committee for shareholders and investors in early October, Revés announced that despite some early challenges faced by the fund managed by Zambezi Golden Assets through its operational holding Zambezi Sugar Industries, it plans to invest nearly $2.8-billion by the end of the 2024/25 fiscal year.

The investment has been focused on participating in strategic existing businesses, mergers and acquisitions, streamlining the sugar value chain, increasing agricultural output and industrial capacity in underfunded operations, as well as undertaking valuable long-term greenfield projects.

"While the fund has successfully secured financial commitments and purchased strategic participation in relevant businesses, specific merger and acquisition processes in SADC have faced delays [owing] to third parties, impacting the desired outcome.

“As a result, a $350-million investment in Mozambique and over $500-million in Angola have been delayed. Additionally, ongoing, or upcoming, electoral events in some African countries have led to further delays, where the investments are on hold and which the fund hopes to overcome in the forthcoming months. The fund is planning a possible 20-year greenfield investment in Economic Community of West African States,” he concluded.