Sasol shares dive after revised costs
JOHANNESBURG – Petrochemical giant Sasol had its biggest one-day drop on the JSE in more than 20 years after it once again revised the cost of its ambitious Lake Charles Chemicals Project (LCCP) by a further $1 billion (R14.4bn).
The news saw the group’s stock drop by 12.99 percent to close at R375, the biggest plunge since October 1, 1998.
In February Sasol had said it expected the project to cost between $11.6bn to $11.8bn, but yesterday revised the figure to $12.9bn.
The mega project had an initial price tag of $8.9bn at the time the final investment decision was made in 2014, taking the total cost overruns over the years to $4bn. Sasol said the increase in the LCCP’s cost did not alter the group’s capital allocation strategy.
“This increase in the anticipated LCCP capital costs is extremely disappointing. Executive management has implemented several changes since February 2019 to further strengthen the oversight, leadership for the project and frequency of reporting,” Sasol said.
“Actions include segregation of duties between project controls and finance functions and assigning a senior vice president to have responsibility for the LCCP project controls.”
Sasol said it would now accelerate its $2bn non-core asset disposal programme and use the proceeds to deleverage its balance sheet. The company, however, did not disclose which assets it will sell.
Shareholder activist Theo Botha said there was not enough accountability on how the project was implemented. “Sasol market cap is R269bn. The total project cost at say $13.5bn will be R193bn. Sasol is betting the farm on this project,” Botha said.
The Louisiana-based LCCP consists of a 1.5 million-ton-per-year ethane cracker, and six downstream chemical units and is currently under construction near Lake Charles, adjacent to Sasol’s existing chemical operations.
The project was expected to contribute more than 70 percent to Sasol’s overall revenue once it is fully commissioned. Sasol said the LCCP, which has also endured numerous delays, was close to completion. The group said overall project completion was at 96 percent as of March, with construction completion at 89 percent.
Asief Mohamed, chief investment officer of Aeon Asset Management, said the LCCP’s cost overruns were unprecedented and showed poor project management. “The company’s executive and non-executive directors should take full responsibility for the cost overruns. They are doing as bad a job as was done by Eskom in building Medupi and Kusile. The role of the consultants the company has employed in the project must also come under scrutiny,” Mohamed said.
Sasol said that its review of the costs and schedule of the project had revealed weaknesses in the project’s integrated controls which it was fixing.
“The board has also commissioned a review to be conducted by independent external experts,” the group said.
“This review will cover the circumstances that may have delayed the prompt identification and reporting of the above-mentioned matters. Upon conclusion of the review the board will take appropriate action."