JOHANNESBURG - Petrochemicals giant Sasol fell nearly 5 percent on the JSE on Friday after it announced that it would sell 50 percent of its troublesome Lake Charles Chemicals Project (LCCP) in the US for $2 billion (R33.29bn) to LyondellBasell.
Sasol said the proposed sale to one of the world’s largest plastics, chemicals and refining companies was a fundamental step towards reducing its net debt before lease liabilities from $10bn to about $8bn, helping significantly improve debt covenant compliance and enhance liquidity.
Sasol said the transaction would create a joint venture with LyondellBasell, concerning the LCCP Base Chemicals Business and the associated land. It said it would retain ownership and the US Performance Chemicals Business – the other legacy base chemicals assets at Lake Charles – and the remainder of the Lake Charles property enabling it to utilise vacant land to develop further facilities on the property.
The group said the transaction was agreed following a competitive process in which it explored several potential constructs to determine which would realise the most value whilst protecting its long-term strategic priorities.
“The intention was to generate significant proceeds to apply towards outstanding debt while enhancing the benefits to be gained from the substantial investment in Lake Charles by partnering with a company with world-class capabilities in commodity chemicals in the industry,” Sasol said.
“Through this process it became clear that the proposal that offered the best combination of upfront and the long-term value was that offered by the LyondellBasell group.”
Sasol said the transaction was in line with delivering on strategic objectives given that it would continue to have full ownership and would continue to operate the US Performance Chemicals Business as well as the legacy base chemicals business, which would help provide an integrated value chain. “This is consistent with the Future Sasol Strategy of increased focus on a global speciality chemicals portfolio,” said the group, adding that it had found a strategic partner in LyondellBasell.
Vestact Asset Management portfolio manager, Michael Treherne, said the group had prepared the market for the sale. Treherne said sold the stake to reduce its debts.
“The price that they received seems to be in-line with the value the market was expecting, even though it highlights how badly Sasol overpaid for the construction of that asset. The $2 billion will be used to reduce their long term debt by 20 percent, which is significant.”
Sasol said it aimed to effect the transaction before the end of the calendar year when the conditions precedent including shareholder approval were expected to be fulfilled and the adjusted purchase consideration received in cash. Sasol has been hurt by falling oil prices due to travel restrictions to curb the spread of the Covid-19 pandemic and announced several plans in March to cushion the blow. In August the group reported a R91.3bn annual loss for the year ended June 2020.
Treherne said the deal was good for Sasol given its circumstances. Sasol closed 3.4 percent weaker at R124.15.