For investors with nerves strong enough to stomach swings in oil prices and delay upon delay in a multi-billion dollar project, Sasol’s bonds have given ample reward.
The Johannesburg-based petro-chemical company’s $750 million of notes due 2028 have returned 11.7% in the year to date, more than the 6.7% gain in the ICE Bank of America Merrill Lynch Emerging Markets Corporate Plus Energy Index and the 6% average across emerging-market corporate debt. The bonds have also beaten returns on the shares, which have added less than 1%.
Revenue from Sasol’s main coal-to-liquid-fuel business depend on the price of crude oil, which has climbed 32% this year. The company recently said its $11.4 billion Lake Charles plant in Louisiana was 96% complete, allaying concerns about continuing cost overruns. The rand’s stability has also helped contain capital and debt-service costs.
“Ultimately, that has enabled Sasol to be in a better position to service debt,” said Bronwyn Blood, a fixed-interest portfolio manager at Granate Asset Management.
Yields on the 2028 bonds have dropped 132 basis points this year, narrowing the premium over comparable US Treasuries to 227 points, from a high of 386 points in January.