JOHANNESBURG - Sasol, the JSE-listed petrochemicals giant, said yesterday that it had grappled with debt of R190 billion during the year ended June, underlying the urgent need to sell non-core assets and do a rights issue to raise funds.
The group said its debt at year end was R189.7bn compared to R130.9bn a year earlier, with R174.6bn denominated in US dollars.
Sasol also said its balance sheet was highly geared and required a reduction in US dollar-denominated debt in order to achieve a targeted net debt to earnings before interest taxation depreciation and amortisation of less than two times and gearing of 30 percent, which it believed would be sustainable with oil at $45 (R780) per barrel.
“Through our comprehensive response plan we have taken immediate steps to reset our capital structure by targeting to generate at least $6bn by the end of 2021,” said the company.
Chief financial officer Paul Victor said the rand weakness against the US dollar had added to the debt woes.
“The devaluation of the rand against the dollar increased the debt with R30 billion,” said Victor.
In March Sasol announced steps to cushion the impact of the low price environment including an accelerated asset disposal programme, a cash conservation programme, partnering options at the Lake Charles Chemicals Project (LCCP) and a potential rights issue. Victor said based on the effectiveness of the asset disposal, the company would decide what size of the rights issue to be pursued.
“We do not want to issue shares for the sake of issuing shares. We want to issue shares based on a position of strength,” said Victor, adding that talks on partnerships for the LCCP were on track. “We have made good progress and we are at the final stages of negotiating the potential outcome on that asset,” Victor said.
In March Sasol had announced a possible $2bn rights issue.
President and chief executive, Fleetwood Grobler, said the group had navigated volatility that he had not seen in his 36 years at Sasol.
Grobler said the combined effects of unprecedented low oil prices, destruction of demand for products and impairments of R111.6bn had resulted in a loss of R91.3bn for the year compared to earnings of R6.1bn in the prior year.
Sasol said the impairments reflected the subdued market environment and included fair value adjustment at the US chemicals plant.
“Our financial performance is a reflection of the significant disruption from macroeconomic headwinds, particularly in the second half of the year,” said Grobler.
Given the prolonged period of economic uncertainty, Sasol said it believed that it would be prudent to continue with the suspension of dividends to protect its liquidity.
Michael Treherne, a portfolio manager at Vestact Asset Management, said the market already knew that the big asset write-downs were coming, so the R91bn loss was not a surprise.
“We got to see the level of debt on the Sasol balance sheet, which went up by R190 billion. The increase in debt is worry. Particularly given that a big chunk of the debt is denominated in international currency. Currently, most of the profits are in rand, which then need to be used to pay US dollar debt. That means a weaker rand hurts their repayments,” Treherne said.
Sasol's share price closed 5.21percent lower at R138.89 on the JSE yesterday.
BUSINESS REPORT