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Sasol Inzalo: the good, the bad and the ugly

Liabilities continue to exceed assets.

No surprises. That summarises the operational performance by analysts of Sasol Inzalo, the Broad-Based Black Economic Empowerment (B-BBEE) scheme of petrochemical giant Sasol Limited, as its liabilities continue to exceed assets.

In its interim results for the year ended December 31 2014, Sasol Inzalo’s total liabilities exceeded its total assets by R372 million. And, it just gets worse for shareholders.

Sasol Inzalo netted a financial income of R248 million which was mainly deployed in paying finance costs of R116 million and capital repayments of R48 million.

The share scheme also continues to service its long-term debt of R7 billion, which expires in 2018. Its current asset base is worth R6.9 billion.

The knock does not end here. The scheme, which has given over 290 000 South Africans the opportunity to own a part of Sasol, suffered a loss of R58 million during the period.

The odds continue to stack against the scheme.

Sasol Inzalo said the decline of its Sasol investment has seen the scheme suspend an interim dividend to shareholders. This was prompted by Sasol’s blow from the recent drop in international oil prices, which has forced the petrochemical counter to tweak its consistent dividend policy.

The scheme’s investment in Sasol was revalued to R6 933 million during the period from R8 276 million at December 31 2013 and R10 172 million at June 30 2014.

“The board of directors have seen it prudent to conserve cash,” said Sasol Inzalo.

The decision to declare a dividend will be made by the Sasol Inzalo board of directors, when full-year results are issued in September.

“The underlying investment of the Sasol Inzalo transaction is Sasol Limited, therefore the performance of Sasol Limited remains a critical influencer to the transaction as a whole.

“The directors will also take into account views expressed by shareholders that income should be applied to the redemption of debt rather than the payment of dividends. We remain confident in the long-term value of the Sasol Inzalo transaction,” it said.

Craig Gradidge of Gradidge-Mahura Investments said when there is a case of a negative net asset value “you are unlikely to be paying a dividend, and particularly with the amount of debt Inzalo has”.

On the scheme’s operational performance he adds: “It is a concern, but not surprising.”

Gradidge warns that, with rising interest rates, the debt that runs into billions will destroy a lot of value in the scheme.

“It is a concern that Inzalo has a market capitalisation of over R1 billion, but a negative net asset value. Investors are too optimistic to give it a high valuation.

“Fundamentals do not justify current valuations. But the fundamentals could change between now and when the empowerment period ends [in 2018],” he said.

To add further injury, the share price of the scheme has faltered from the highs of R144.11 in October to R71 to date.

The good

The shares for Sasol Inzalo still trade over-the-counter (OTC), despite a Financial Services Board directive which plans to put a stop to unlicensed exchanges – which extends to the OTC platform.

This has seen many B-BBEE shares scramble for new platforms including MTN Zakhele, Thembeka Capital and more.

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Not to worry they will just prop it up like with other schemes or give everyone their money back. Other investors on JSE take losses and profits without intervention. You cannot just invest with no risk attached. Absolute nonsense.

End of comments.

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