Sasol announces plan to allay investor jitters
The company said it had a plan to mitigate the impact of the weaker oil price, including prioritising a potential equity issue to manage its near-term debt covenant constraints.
But the news failed to stop the continuing free-fall of its shares, which wiped a further R7.71billion off its stock.
In the past five days alone, Sasol has lost nearly 80percent of its market cap.
The group, which has an R121bn debt burden, closed at R37.24 a share, down 29.36percent.
It tumbled since Monday as Brent crude oil fell on coronavirus fears and the escalation of the standoff between Saudi Arabia and Russia.
Yesterday, Brent crude fell 6.94percent to $33.27 (R534.75) a barrel. On Monday, Sasol plunged 46.46percent to R85.35.
Saudi Arabia has increased its oil supply, compounding Sasol’s fortunes even worse.
Yesterday the embattled group said the unprecedented set of combined challenges driven by the coronavirus and the significant decline in the oil price had come at a time when the company was in a peak gearing phase of the US-based Lake Charles Chemical Project (LCCP).
“At the prevailing rand oil price of approximately R580/bbl, Sasol will be within the current covenant levels at June 30,” said the group.
Sasol said it was pinning its hopes on further plans to be announced on Tuesday.
It said the plans would include talks with its lenders and expanding the asset disposal programme to realise proceeds in excess of the current $2bn targets.
“Thus far, engagements have been constructive,” said Sasol. It said it would also announce business optimisation to reduce costs, and was re-scheduling some capital expenditure.
The group said it was confident that its foundation business was able to generate positive cash flows in the current price environment saying it had no significant debt maturities before May next year and its current cash and available facilities were $2.5bn.
Moody’s has also cut Sasol’s credit rating on concerns that its debt level for the LCCP was unsustainable. The LCCP project has weighed heavily on Sasol after its costs ballooned to between $12.6bn and $12.9bn from an original $8.1bn estimate.
Commentators said yesterday that at the current very low oil price, Sasol’s profits would plummet further. Vestact Asset Management’s Michael Treherne said Sasol needed those profits for debt repayments.
Treherne said the company's balance sheet was weak, and it was carrying too much debt from its recent capital expansion in the US.
“Their credit rating, as measured by agencies that look at their balance sheet closely, was downgraded to junk status over the weekend. Debt is like a magnifying glass - when things are going well, debt makes those results even better. On the flip side, when things go badly, debt makes it much worse,” Treherne said.
The Johannesburg-based company said last month that the weak macroeconomic environment and the LCCP being in a ramp-up phase resulted in cash generated by operating activities falling by 21percent to R19.6bn compared to R24.8bn in the six months to December 2019.
Asief Mohamed, the chief investment officer at Cape Town-based Aeon Investment Management said the LCCP profits guided by management for the June 2021 financial year could strengthen the company’s balance sheet in helping repay debt.
The lower Rand oil price will put profits under significant pressure, unless the Rand oil price recovers in the next few months.