Sasol is preparing for South Africa’s biggest rights issue in two decades as it raises cash to meet debt obligations after a share-price collapse sparked by cost overruns at its US chemicals project and the plunge in oil prices.
The company expects to raise R99 billion ($6 billion) by the end of its 2021 financial year, including a share sale of as much as $2 billion, it said in a statement. It has entered into a standby underwriting agreement with BofA Securities, Citigroup and JP Morgan Securities for the rights issue, it said.
The sharpest slump in oil prices since 1991 hit Sasol just days after Moody’s Investors Service downgraded it to junk, citing high debt and spending on the Lake Charles Chemicals Project in Louisiana. The company said it will remain in compliance with gearing ratios required by its debt covenants.
Immediate measures planned by the company will raise $1 billion from “working capital optimisation” and cost savings, according to Sasol. Other measures planned over the next two years will include a cash conservation program and hedging to address low oil prices, an accelerated and expanded asset sale program and potential for partnering options at Sasol’s US base chemicals assets.
“Sasol believes achieving these targets would enable it to maintain a net debt-to-ebitda in compliance with financial maintenance covenants,” the company said.
Sasol has available liquidity of approximately $2.5 billion “with no significant debt maturities before May 2021 and it therefore believes it is positioned to withstand recent market volatility in the short term,” it said. “Sasol believes it can maintain liquidity headroom in excess of $1 billion over the next 12 to 18 months with a $25 per barrel oil price before the benefits of hedging.”
The company’s shares climbed 13% to R50.69 by 9:32 a.m. in Johannesburg, paring their decline this year to 83%.
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