JOHANNESBURG - SASOL has taken its $2 billion (R29.36bn) rights issue off the table after cash conservation efforts coupled the asset divestments paid off helping the group to reduce its debt burden as it reported improved earnings during the six months to end December.
Sasol said yesterday that it had decided not to pursue a rights issue, given the current macroeconomic outlook, and the significant progress made on its response plan initiatives.
Chief financial officer Paul Victor said Sasol had turned the corner and did not need to go to shareholders as it had delivered on its plans to strengthen the balance sheet ahead of schedule.
“The balance sheet debt is getting to a decent place, we are profitable at an oil price of below $45 a barrel, that does not need shareholders to step in and help us. We are in a pretty good position. We have turned the corner,” Victor said.
Last March,when the Covid-19 pandemic hit and oil prices fell below $30 a barrel, Sasol said it needed to pay debt down to at least $6bn, which was around $11bn while the rand was weakening against the dollar. At the time Sasol announced plans to conserve cash, asset sales of between $2bn and $4b and possibly tap on shareholders' shoulders for a possible $2bn rights issue to deleverage its balance sheet.
Sasol yesterday reported that proceeds from the assets disposal programme totalled $3.3bn to date, with the group planning to generate between $3.5bn to $3.8bn in further asset sales in 2021. It said said it had delivered more than $1bn in cash conservation efforts in 2020 and was on track to save another $1bn in 2021.
The most significant disposal was the sale of the 50 percent interest in the US Lake Charles Chemicals Project Base Chemicals business for $2bn to LyondellBasell, one of the world's largest plastics, chemicals and refining companies.
Sasol said it slashed debt to R126.3bn at the end of the six months ended June down from R189.7bn in June last year. Proceeds from the asset divestment programme repaid the US dollar syndicated loan, and a portion of its revolving credit facility reducing its US dollar denominated debt by almost R28bn ($2bn) to R121bn ($8.2bn). Sasol withheld its dividend payout, given its current financial leverage and the risk of prolonged economic uncertainty.
Victor said Sasol protected investors significantly in the face of a collapsed oil price, and Sasol shares were back at R210 a share after falling to R20 a share. “No dividend can make that up for you. Our first choice given the fact that we have not issued a rights issue will still be to make sure that our debt is below $6bn and that debt covenants are below the bank covenant level, then we can consider paying a dividend. The dividend is probably in the next 12 to 18 months if all goes well,” Vicor said.
Despite being impacted by a 23 percent decrease in the average rand per barrel price of Brent crude oil coupled with softer demand due to Covid-19 lockdowns and the US Gulf Coast Hurricanes earnings increased more than 100 percent to R15.3bn from R4.5bn in the prior period following non-cash adjustments.