Sasol shares fall after warning of 20% drop in earnings

Sasol expects full year earnings to dip by as much as 20% amid a volatile oil price and the impact of Covid-19, which hit the petrochemicals giant in recent months.

Sasol's shares dived as much as 6% in morning trade following the announcement.

The news of anticipated lower earnings top a turbulent year for the company, in which it has battled several operational crises including the effects of the pandemic on markets where it operates. As part of its response to the crisis, Sasol has drawn up a cash conservation strategy which included a disposal of assets and a potential rights issue of up to $2 billion.

"Sasol shareholders are advised that implementation of the response strategy is underway, the outcome of which may have a material effect on the price of the company’s securities," the company said in a statement.

The firm's debt burden of R121 billion, which was compounded by the financing of the Lake Charles chemicals project in the US, has also been a source of concern for investors, and there are plans to offload a stake in the project to a partner.

According to Barry Dumas, trading specialist at Purple Group, the slide in earning shows the extent of the Covid-19 pandemic and the impact of the "dramatic downturn in the oil market" on the company.

He added that Sasol shareholders might "come under more pressure if its strategy to mitigate risk, which includes a cash conservation programme, an accelerated and expanded asset disposal and partnering programme fails".

It is not clear which assets might be disposed of, but one investment analyst suggested that non-core assets may be considered. The Johannesburg-headquartered firm had previously put its available liquidity at approximately $2.5 billion.

Dumas said there was a possibility of a rights issue of up to $2 billion, which he said remained subject to the progress of other initiatives that might give the company a much-needed boost. Sasol is expected to release annual financial statements on August 17.

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