Sasol’s loss, last-ditch funding effort drive shares lower

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Sasol said it plans to sell as much as $2 billion of shares in a rights issue in the first half of next year, a move executives had said was a last resort contingent on the success of an accelerated asset disposal plan. Picture: Elvira Wood
Sasol said it plans to sell as much as $2 billion of shares in a rights issue in the first half of next year, a move executives had said was a last resort contingent on the success of an accelerated asset disposal plan. Picture: Elvira Wood

BUSINESS


Sasol has reported an annual loss after $6.5 billion (R113 billion) in asset write-downs and the scheduling of a rights issue as its struggles continued amid the Covid-19 coronavirus pandemic. The shares slumped as much as 9.6%.

Lower demand and prices for its products due to the virus, compounded by problems at its US Lake Charles chemical project, is making a bad year worse for the South African company.

Sasol said it plans to sell as much as $2 billion of shares in a rights issue in the first half of next year, a move executives had said was a last resort contingent on the success of an accelerated asset disposal plan.

“The combined effects of unprecedented low oil prices, destruction of demand for products” and write-downs resulted in the loss, the company said.

“Within a volatile and uncertain macroeconomic environment, our foundation businesses still delivered resilient results.”

Lower demand and prices for its products due to the virus, compounded by problems at its US Lake Charles chemical project, is making a bad year worse for the South African company

Sasol’s net loss was R91 billion (about $5.2 billion) for the year ended June 30, after R112 billion in asset write-downs, according to a statement on Monday.

The shares were 5.8% lower, earlier dropping to the lowest intraday level in two weeks.

The company plans to focus specifically on chemicals and energy, its core businesses, after a string of disappointments at the Lake Charles Chemicals Project in Louisiana, US.

Those failings resulted in the resignation of its co-chief executive officers and cost overruns that drew attention to its net debt.

Chemical project

Lake Charles, approved in 2014 at an estimated cost of $8.1 billion, exceeded its “worst-case scenario” for price over the last few years as problems continued to deepen.

The last remaining unit to come online will be the low density polyethylene facility, which was damaged during a fire in January. That is expected to reach full operation in October, extending earlier delays.

The South African fuels and chemicals maker has moved forward with its asset sales, including a stake in the US chemicals business.

It has had “huge interest” for the stakes in Lake Charles and its holding in the Mozambique-to-South Africa Rompco natural gas pipeline, chief executive Fleetwood Grobler said in an interview.

Sasol has already agreed with Air Liquide SA to sell air-separation units for R8.5 billion and a 10% interest in the Escravos gas-to-liquids plant in Nigeria to Chevron Corp.

The combined effects of unprecedented low oil prices, destruction of demand for products” and write-downs resulted in the loss
Sasol

The company said it has also made progress with lenders to relax covenants, resulting in “no significant debt maturities before June 2021”, when a $1 billion syndicated loan comes due.

Sasol is restricted from paying dividends for as long as its net debt is more than three times earnings before interest, taxes, depreciation and amortisation. The ratio is currently 4.3.

Net debt is currently almost $10 billion and it intends to reduce that by as much as $6 billion. Paying that down and the new, focused strategy will help “reset” Sasol, Grobler said. – Bloomberg


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