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Sasol slashes debt by R63.4bn, avoids dilutive rights issue

Improved interim financial results sees uptick in share price in early morning trade, however, the stock ended the day marginally lower.
Image: Waldo Swiegers/Bloomberg

Petrochemical multinational Sasol on Monday confirmed that it will not to pursue a rights issue, as the group made headway in slashing its debt burden by just more than a third (or R63.4 billion) for its half-year to the end of December.

Sasol published its latest results on the JSE, which showed that the group’s total debt at the end of its interim period stood at R126.3 billion, compared to R189.7 billion as at June 30, 2020 (it full-year).

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This is a notable cut within just six months, which comes largely on the back of the 50% sale of its Lake Charles Chemicals (mega) Project (LCCP) in the US.

Read: Sasol to sell Lake Charles stake for R33.38bn

It has also meant the group has avoided a dilutive new rights issue, which was one of the options it was considering to bring its ballooning debt under control.

“During the period [interim to December 31, 2020], we utilised proceeds from our asset divestments to repay the US dollar syndicated loan, as well as a portion of our revolving credit facility, reducing our US dollar denominated debt by almost R28 billion [US$2 billion] to R121 billion [US$8.2 billion],” Sasol pointed out in its Sens results statement.

“Through our comprehensive response plan and planned asset divestments, we intend to further reduce our net debt to achieve a net debt: Ebitda [earnings before interest, taxes, depreciation, and amortisation] ratio of less than 2.0 times and gearing of 30% by 2023,” it added.

“Our gearing decreased from 114.5% at June 30, 2020 to 76% at December 31, 2020 mainly due to repayment of US dollar debt [20%] and a stronger closing rand/US dollar exchange rate [7%],” it said.

Sasol noted that its “decision not to pursue a rights issue” comes amid the current macroeconomic outlook and “the significant progress” it has made in its response plan initiatives.

“The balance sheet deleveraging pathway will continue to be prioritised to ensure that we operate within our financial covenants and maintain adequate liquidity headroom, whilst delivering the Sasol 2.0 transformation programme,” it said.

Sasol’s share price was up as much as 4% in early morning trade on the news, however, the stock ended the day marginally lower. The group not declaring an interim dividend.

Read: Sasol says fuel stations not up for sale

The group said that it had “delivered a good set of results” for the six months ended December 31, 2020, with earnings increasing by more than 100% to R15.3 billion from R4.5 billion in the prior period.

Sasol did not declare an interim dividend.

“Despite a 23% decrease in the rand/barrel oil price, our adjusted Ebitda decreased by only 6%. This achievement is as a result of a strong cash cost, working capital and capital expenditure performance in response to the challenging environment,” it said.

Sasol noted that its earnings were positively impacted by the following non-cash adjustments:

  • Gains of R4.6 billion on the translation of monetary assets and liabilities due to a 15% strengthening of the closing rand/US dollar exchange rate compared to June 2020;
  • Gains of R5 billion on the valuation of financial instruments and derivative contracts; and
  • R3 billion gain on the realisation of the foreign currency translation reserve, mainly on the divestment of 50% interest in the US LCCP Base Chemicals business.
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This is good news for shareholders.

However, Sasol created this mess all by itself and shareholders have paid dearly for it.

Has the cause been removed? The responsible people sent packing? The related culture expunged and replaced with proven competence? Is this ship rescued from the deep or just appearing to be floating as it continues to take on water with an unqualified and incompetent captain and crew?

Sasol needs to give advice to ESKOM on how to reduce debt ……stop being emotionally attached to under performing assets …….we not love sick teenagers anymore !!

Don’t be so fast to clap hands.
Remember Sasol has postponed the annual shutdown at the Secunda factory, which means equipment is being stretched without the needed maintenance. Dangerous to neglect your main income money making equipment. It will be disastrous if something fails now. The shutdown has been postponed, so downtime production losses, shutdown costs and labor costs have also been postponed.
The chickens are circling the roost.

Wow, is that the cause of that bad in Gauteng? Neglecting maintenance and shutdown?

If you don’t quite recall, they took their annual maintenance cycle during the lockdown, so they could avoid the one now.

Not Correct. See SASOL Sens statement of 18 June 2020. They actually did it earlier in May 2020, therefore the 2nd half had no little interruption.
Extract:

OPERATIONAL PERFORMANCE UPDATE
As previously communicated an unprecedented decrease in fuel demand in South
Africa as a result of COVID-19 resulted in us reducing our production rates at Secunda
Synfuels Operations (SSO) and suspending production at the Natref Refinery in
Sasolburg, in a joint decision with Sasol’s partner, Total South Africa.
Sasol used this period of lower production to bring forward its planned September 2020
maintenance shutdown at SSO. This shutdown was successfully completed in May
2020 and ensures production will be uninterrupted for the remainder of the calendar
year. Similarly, maintenance work planned for later during calendar year 2020 at Natref
was successfully completed during the lockdown period.

The recent pollution over Joburg points to all plants being short of something important.

Yes a rushed shutdown. Only cleaning equipment. No installation of new equipment. Little to no maintenance or replacement of pipes etc.
They never report all the fires and mini explosions in the SENS. They only ever publicly report on a fatality, not all injuries or equipment damage, no matter how severe.

I wonder how long it will take before Sasol resume paying dividends.

It’s a good time to be a SASOL shareholder.

Yep, especially if you bought in the second quarter of last year.. Over 400% increase and climbing.

Sasol Shoprite EOH Richemont PRX and Steinhoff.

All you really need this year.

Selling the family silver to pay debt.

A South Korean firm built a similar plant close to Lake Charles at half the cost, in half the time.

When is the Sasol CEO and Board going to be held accountable for not hedging against the oil price?

Buying a Sasol share is like borrowing money to fund the margin on a long futures position(gearing on gearing) on the price of Brent Crude. Most Sasol investors enter this trade without realising what actually drives the share price. Why not simply buy a future or Call option on Brent Crude?

The recent rally in price is not that good if you were a Sasol shareholder pre “culture of fear” and oil collapse.
In which case you are still -R200 in the hole per share.
This boat could be afloat on artificial hype.
They raised enough capitol to service it’s debt by selling everything that was not nailed down. But they are running out of things to sell.
What are they going to do to service the rest of the debt when that comes due?

End of comments.

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