Sasol may sell assets or stock to shore up finances

The company has been hit by fears around by the Covid-19 and oil price decline. 

Sasol said it may sell assets or stock to ease its financial woes after an oil-price collapse exacerbated a debt burden swelled by a troubled expansion in the US.

The fuel and chemicals producer will also seek to reduce operating costs and reschedule some capital expenditure, it said in a statement on Thursday. The group will be within its debt covenants on June 30, its financial year end, as long as oil prices remain at current levels, Sasol said.

“The disruption in the global oil market, coupled with the ongoing impact of Covid-19, has significantly changed the outlook in just a few weeks,” CEO Fleetwood Grobler said. “It is critical that we keep matters within our control by acting quickly and decisively.”

Sasol, which is due to hold a call for investors on March 17, has seen its stock fall 88 percent this year. The plunge in the oil price, driven by a disagreement between Saudi Arabia and Russia, exacerbated investor concerns regarding its ability to repay debt after the cost of a chemicals plant in Louisiana surged almost 50 percent. 

“Sasol is confident that its foundation business is capable of positive cash flow from operations in a low oil price environment,” Sasol said. “At the prevailing rand oil price of approximately R580 a barrel, Sasol will be within the current [debt] covenant levels as at 30 June 2020.”

The group said it has cash and available facilities of about $2.5 billion and no significant debt maturities before May 2021.

The share price has plummeted as a result, wiping more than R76 billion off its market value since Monday when crude oil suffered historic losses that deepened concerns about Sasol’s ability to pay its R121 billion debt and triggered talk that the company may need to tap shareholders for a cash injection.    

Sasol is crucial to South Africa’s economy. The company, founded in 1950, shielded the apartheid society from sanctions by making fuel from locally mined coal. Today it still meets about 30 percent of South Africa’s motor-fuel needs and employs 31 000 people.

Sasol’s biggest shareholders are linked to the government. As of June 30 last year, the Government Employees Pension Fund, which holds the retirement funds of South African civil servants, owned 13.1 percent of Sasol’s stock and the Industrial Development Corporation, a state lender, held 8.2 percent, according to a filing to the US Securities and Exchange Commission.