Sasol shines a bit brighter after progress with hedging programme
The petrochemicals giant’s shares rose 17.24 percent on the JSE to R36.93, after it told investors that hedges were in place for about 80percent of its syn- fuels production for the fourth quarter, at about $32 (R573) a barrel.
“Crude oil hedging execution will continue for the next 12 months, while US dollar and rand and ethane hedging programmes have been executed for the next 12-month period,” the company said.
The group also said it had $2.5billion in liquidity to provide an additional buffer against short-term volatility.
The news came hours after Moody’s slashed Sasol’s corporate family ratings (CFR) from Ba1 to Ba2, saying it was of the view that the group’s credit metrics would deteriorate in the next 12 to 18 months, contrary to the rating agency’s previous expectation of a moderate deleveraging.
Moody’s also placed the company’s ratings on review.
“Sasol has been caught at the intersection of a series of credit negative developments, including a significant deterioration in the operating environment from a combination of the collapse in oil prices, the widening impact of the coronavirus outbreak, and the weakening of South Africa’s sovereign credit quality at a time when its balance sheet has reached peak gearing because of its Lake Charles Chemicals Project (LCCP) related capital spending,” said Moody’s.
Moody’s said that South Africa’s 21-day lockdown would be a further blow for the group.
“South Africa’s 21-day lockdown to contain the outbreak creates further uncertainty on near-term financial performance, while an extended lockdown beyond the original timeline could further affect performance,” said Moody’s.
Last month, S&P revised Sasol’s BBB- rating to BB, with a negative outlook. Sasol said the revisions would result in borrowing costs rising by $10million a year.
Chief executive Fleetwood Grobler said the company would continue to take decisive action to help safeguard the health and well-being of its employees and stakeholders, “while we reposition the business to enhance its long-term future”.
Sasol has been the biggest casualty on the JSE of the coronavirus uncertainty, after Saudi Arabia and Russia’s fallout over oil supply policy.
The company last month announced a target of generating $6bn by the end of the 2021 financial year through asset disposals, and the potential rights issue of up to $2bn to cushion its balance sheet from the impact of the coronavirus, as well as the low oil price environment.
Moody’s said that asset disposals were a key pillar of its strategy to deleverage the balance sheet, “but the timing and amount of money it can raise in the current environment is uncertain”.
Michael Treherne, a portfolio manager at Vestact Asset Managers, said the oil price slump and demand for Sasol’s product had also declined with the country’s lockdown regulations.
“Lower profitability coupled with lower sales volume is not a good combination for a company already struggling under too much debt,” Treherne said, adding that the company could likely restructure if its debt profile deteriorated further.