Tongaat shareholder Artemis backs investors in bid to stall rights offer

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Once a billion-dollar company and still the largest private-sector employer in Mozambique and Zimbabwe, Tongaat has lost over 90% of its market value following its disclosure in 2019 that it overstated its revenue, profits and assets in previous years.

While it has pared down debt under a new management, its sales have fallen considerably and long-term shareholders are still stuck with low valuations. On Tuesday it announced a successful debt refinancing agreement with its lenders.

Artemis, a top four shareholder with a stake of 8.33%, will support a group of minority investors represented by Retail Investment Corporate Holdings (Rich), said that group's leader Harry Smit and Artemis director Charles Liasides.

The shareholders will seek to reach a total equity stake of 10% in Tongaat and gradually increase it, Smit said.

"Unless you have a minimum of 10% shareholding, it is difficult for us to get a voice," Smit said, adding that the size and timing of the rights offer will be among his first questions to the management.

He said a 10% stake would give him substantial backing to reach out and persuade other shareholders to vote against the rights offer.

Smit's Rich group intends to sell some of its other investments to increase its stake in Tongaat to be able to engage with management and oppose the rights issue.

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Last month Tongaat's announcement of a R4bn ($251m) rights offer wiped off more than a quarter of its market value in a day as investors had expected the company to avert such an offer or at worst seek one worth around R2bn.

The rights offer, if successful, could effectively give control of the company to an unlisted entity, Magister Investments.

Liasides from Artemis said he had been raising the same issues with the management.

He said he did not sign Tongaat's irrevocable letter of undertaking on Nov. 9 which would have given his support to the rights offer.

In a letter sent to Tongaat Chairman Louis von Zeuner on Nov. 22 seen by Reuters, Liasides objected to the company's rights offer calling it "extremely dilutive to all existing shareholders".

The chairman's response letter, seen by Reuters, said the company was in closed period due to its interim results, but assured that in due course more details would be revealed.

Liasides told Reuters the rights issue could effectively dilute his 8.33% holding in the company to just over 1% if he doesn't subscribe to the issue.

In an emailed response to Reuters, a Tongaat spokesperson said the company's financial results on Dec. 9 would include supplemental information on the rights offer.

"As always, we have maintained open and transparent dialogue with all our shareholders, and have been responding on email to all written questions received," the response said, adding 38.6% of its issued shares have got support for the rights issue.