Sasol started a hedging programme as it looks to tackle plummeting prices and a crash in demand for its oil products and chemicals. The shares surged as much as 24%.
It hedged about 80% of its synthetic fuel production in the fourth quarter at about $32 a barrel, the South African oil and chemicals producer said Tuesday. The company will continue to hedge crude for the next 12 months.
The move follows credit rating downgrades by Moody’s Investors Service and S&P Global Ratings. The cost of some of Sasol’s floating-rate debt is partly linked “to our credit rating and the revised rating profile will therefore result in an increase in finance costs from existing facilities” by approximately $10 million a year, it said.
The stock gained 19% as of 2:35 p.m. in Johannesburg, after rising to the highest level in 12 days. The company has had a torrid year so far with the shares slumping 88% as earlier cost overruns and delays at its Lake Charles chemical project in the U.S. were made worse by lower oil prices and the Covid-19 pandemic.
Sasol is considering the option of a rights issue in order to meet debt obligations. The company plans to continue running its South African operations for the duration of the country’s 21-day virus lockdown. But some plants will be required to reduce throughput, or potentially shut down following lower demand, it said.
It has about $2.5 billion of liquidity.
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