Sasol ready to sell 50% of its Texas polyethylene asset to reduce debt
JOHANNESBURG - PETROCHEMICALS giant Sasol surged the most in one month following on news that it would sell a 50 percent interest in its polyethylene asset in Texas, for $404 million (R6.21 billion) in line with its ambition to reduce debt.
Sasol jumped 9.69 percent to R127.02 after it said that it had agreed to sell half of its stake in Gemini HDPE LLC, a producer of bimodal high-density polyethylene to Ineos Olefins and Polymers (O&P) USA.
Sasol said that the sale was a step towards accelerating the focus on specialty chemicals and reducing net debt.
“Proceeds from the transaction will be used by Sasol to repay near-term debt obligations,” said Sasol.
The transaction comes just days after Sasol shareholders voted overwhelmingly in support of the 50 percent sale of the group’s Lake Charles Chemical Project (LCCP) to LyondellBasel, one of the world’s largest plastics, chemicals and refining companies for $2bn (R30.74bn).
More than 99 percent of shareholders voted in favour of the deal, which also aimed to reduce debt during the company’s general meeting held on Friday.
In July Sasol announced the sale of 16 air separation units to Air Liquide Large Industries South Africa for R8.5bn.
The proposed acquisition would allow Ineos O&P USA to further expand its reach in the specialty polyethylene markets.
Ineos O&P USA chief executive, Michael Nagle, said: “We are excited about the opportunity to acquire Sasol’s half of Gemini.
“This world-class asset is positioned to serve the growing global bimodal markets and would allow our business to meet increased demand from our customers.”
Head of equities research at Old Mutual Investment Group Meryl Pick said the sale was a positive step and follows in the same vein as the disposal of a stake in LCCP.
“De-leveraging the balance sheet and avoiding a rights offer is key to unlocking value in Sasol right now.
Although it is a bad time in the global cycle to sell a chemicals asset, this deal gets them closer to avoiding covenants breach without a rights offer,” Pick said.
Sasol, which is juggling debt of around R190bn, has been decimated by the oil price collapse due to the Covid-19 pandemic hitting demand.
The Sasol share price has lost 60 percent since the beginning of the year after oil prices hit record lows sending markets in a tailspin.
Sasol’s woes were exacerbated by operational challenges at the LCCP plant, which finally became fully operational last week after several delays and cost overruns.
In March Sasol announced that it would embark on a combination of measures including asset disposals, a possible $2bn rights issue and cost cutting measures to protect its balance sheet.
Vestact Asset Management portfolio manager Michael Treherne said the sales were in line with Sasol’s strategy of selling assets to reduce debt, which would mean a lower rights issue value next year.
“The lower the rights issue value, the better for shareholders. Generally in these cases – where companies are forced to sell assets – they can only sell their good assets, and are left at the end with the weaker assets. Let’s hope this is not the case with Sasol,” Treherne said.