Sasol may issue R33bn in new shares, wants a partner in the US

Sasol
Sasol

Following a disastrous share crash, oil and chemicals company Sasol on Tuesday released a new plan to raise at least $6 billion (R100 billion) by the end of 2021.

Sasol [JSE:SOL] has now lost 90% of its value over the past year, and suffered major losses last week after a shock fall in the oil price. Sasol lost two-thirds of its value last week.

Investors are concerned about the company's debt burden of R121 billion - largely built up to finance the problematic Lake Charles chemicals project in the US. Sasol is valued at only R28 billion by the market. 

Some of Sasol's loan conditions require that its debt-to-profit levels remain above a certain level. Sasol's profits will take hit a from the lower oil price, which will probably leave it in breach of these debt covenants. This means that its loans could become payable immediately.

On Tuesday, Sasol confirmed that it will be able to comply with these debt covenants - as long as the the rand oil price is consistent at around R580 per barrel. Currently it is at R515.

"In the short term, Sasol needs to enhance cash flow and reposition the balance sheet on the assumption that there is a sustained low oil price until the end of financial year 2021," Sasol said in its shareholder notice.

It is now planning to do a potential rights issue, which would involve issuing $2 billion (R33 billion) in new shares. This will be bigger than its entire market capitalisation of around R28 billion.

It also wants to sell assets worth $2 billion - and it is now looking for a partner in its US chemicals business, which primarily consists of Lake Charles. 

Sasol is planning measures to improve cash conservation and improve cash flows, which is expected to raise $1 billion by 30 June 2020 and another $1 billion the following year.

"Collectively these actions target generating at least $6 billion by the end of financial year 2021. This is expected to reshape Sasol's balance sheet and provide the platform to deliver a globally competitive business with high cash yielding assets," the group said..

Sasol currently has available liquidity of approximately $2.5 billion, with no significant debt maturities before May 2021. According to the group it believes it can withstand market volatility in the short term.

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