Documents in the FM’s possession chronicle the grim inside story of what tipped Tiger Wheels’ (TiWheel) only local operating arm, ATS Light Alloy Wheels SA, over the brink.

In December, the listed Tiger Wheels company was split into two separate JSE vehicles, TiWheel and Tiger Automotive.

TiWheel kept the 74% of German wheelmaker ATS Beteiligungs (which has plants in Germany, the US, SA and Poland), while Tiger Automotive took the rest, including the Tiger Wheel & Tyre retail outlets you see on SA streets.

But while Tiger Automotive is holding up well, TiWheel is reeling. First, ATS’s German operation filed for liquidation last month, prompting TiWheel to ask for its shares to be suspended from the JSE on July 11. Soon after, ATS’s SA arm followed into liquidation.

With the 74% share of assets worth R2,6bn, the liquidation of TiWheel’s subsidiaries is the biggest winding-up affecting an SA firm since LeisureNet.

Eddie Keizan, the ex-Formula One driver who built the Tiger Wheels business, has talked gamely throughout about TiWheel’s recovery prospects. “This should never have happened,” he said this week. He refuses to be drawn on the overall prospects until there is some certainty over TiWheel’s options.

But weight must be given to Bidvest’s decision last week to write down its entire 20% investment in TiWheel to zero (at a cost of R178m). That does not say much for the outlook for the wheelmaker, whose customers include Mercedes-Benz, Audi and BMW.

Hours before ATS Light Alloy Wheels SA went into liquidation last month, Bidvest CEO Brian Joffe quit as an alternate director of TiWheel “with immediate effect”.

This week Joffe told the FM: “To be honest, I wasn’t impressed, the way it happened, and the final outcome.” He said there had been “so many negative surprises along the way, we took the most conservative approach”.

Though Joffe says “I don’t think we’ll get zero” out of the investment, Bidvest’s actions send a clear message about his views on TiWheel’s future. And if Joffe isn’t confident, other investors should be wary too.

ATS is not an insignificant player. It has a 6% share of the global aluminium wheel market. But it had a double blow from rising aluminium prices and problems at its Kentucky plant after a major deal hit the skids.

In SA, ATS faced a cash crunch, as a July strike by the National Union of Metalworkers of SA coincided with the explosion of a furnace at its main Babelegi plant north of Pretoria.

ATS liquidator Osman Moosa says there were other problems: “Overhead costs were too high, especially [for] staff and raw materials, and the selling price of the wheels was also too low.”

Many thought the SA operation could be saved, but now this looks unlikely. Moosa has abandoned efforts to relaunch the business and is now looking to sell assets. The main asset in SA is the Babelegi plant and the liquidators could realistically sell this for R80m.

“We did contemplate reopening the plant,” says Moosa, “but we needed indemnity from ATS’s creditors, which they refused to give us. So we’re now in the process of entertaining bids for the company and we’ve already had five expressions of interest.”

Various documents, disclosed for the first time here, detail what tipped ATS over the edge in SA.

It seems the trouble began after TiWheel was suspended from trading on the JSE just after 9am on July 11. Later that day, BHP Billiton — which sold aluminium to ATS — sent an urgent letter to ATS’s local MD, Dror Sery, noting the suspension and saying: “ATS is due to make a significant payment to us in the amount of R5,3m tomorrow.”

BHP Billiton senior counsel Ondine Weller said that unless BHP Billiton was “in receipt of ATS’s payment by the close of business tomorrow, we will seek re-delivery of our stock … We require an undertaking from ATS by the close of business tomorrow that it will not [use] any more of our unpaid stock, failing which we will have no alternative but to … seek an urgent high court interdict.”

ATS didn’t pay or return stock, so Weller sent another letter to ATS on July 13: “You failed to make a payment to us in the amount of R5,3m [so] … we are entitled to cancel all existing contracts with you [and] are now entitled to redelivery of all our unpaid material.”

On the same day, Paul Mynhardt from First National Bank’s (FNB) corporate credit department sent a “letter of demand” to ATS. This shows that FNB had provided a general banking facility of R44,9m and an aluminium hedging contract worth R503664.

FNB said it “hereby demands from you full repayment of the facilities with immediate effect”. It added that unless this was repaid, or another agreement made, “we will proceed with legal action”.

In the liquidation application ATS’s Sery set out the case for a voluntary liquidation. He said that “for approximately the past year [ATS Light Alloy Wheels SA] has experienced cash-flow difficulties.” He recounted how TiWheel had already lent R80m to ATS in the first six months of this year, but said TiWheel “is no longer able to continue financing [ATS] or to procure finance.”

Sery said this meant ATS was unable to “service the interest or any portion of the capital due to its bankers [or] … to raise the necessary cash flow or finance in order to pay its suppliers.”

The point about cash flow “in the past year” is notable, given the perception in some quarters that the separation between TiWheel and Tiger Automotive in December was a pre-emptive ringfencing of liabilities.

But Keizan says this insinuation is “absolutely not true”, especially as the split was first announced in July last year, before any indications of trouble. “At the time of the unbundling [in December], the liabilities were already ringfenced, and TiWheel was sitting with R100m in cash. There was absolutely no indication of the cash-flow problems that [ATS SA] would face as customers delayed their new models.”

But Moosa says that, on the face of it, “it looks like ATS was trading in adverse circumstances for a while before it went into liquidation.”

At liquidation last month, ATS’s liabilities were R197m, including the R46m owed to FNB and the R80m to TiWheel. Moosa says liabilities have now topped the R200m mark. However, he has already collected about R40m that was owed to ATS, and if he can get R80m from selling the ATS plant, the company can settle some of its liabilities.

Says Moosa: “We are planning to pay an advance dividend to the 440 staff members, so that at least they get something, because they’ve had a rough time.”

Overall, this picture suggests TiWheel will be repaid at least some of the R80m it is owed by ATS. But with prospects looking dim, this will be cold comfort for shareholders.