Sasol Ltd. is preparing for South Africa’s biggest rights issue in two decades after a share-price collapse sparked by cost overruns at its U.S. chemicals project and the plunge in oil prices. The stock slumped.
The company plans to raise $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 J.P. Morgan Securities for the rights issue.
Sasol expects to comply with debt covenants relating to credit ratios by the end of the financial year June 30, assuming a prevailing rand-oil price of approximately 580 rand ($35.22) per barrel. It’s in discussions with lenders about “adequate flexibility” to ensure covenant thresholds are maintained.
The shares reversed an early gain to fall as much as 22%. They closed 18% lower at 36.69 rand in Johannesburg, bringing their slump this year to 88%. Yields on Sasol’s $750 million of 2028 bonds climbed 13 basis points to 9.53%.
The company outlined the following measures through the 2021 financial year:
Immediate cash improvement of $1 billion during its 2020 financial year through capital optimization and cost savings.A potential equity issue after the current financial year, targeted at $2 billion though the amount may be reduced if cash generation improves. A meeting of shareholders will take place around July to approve necessary resolutions to implement the offer.Further measures targeted in 2021 to improve the net debt position by $1 billion, including re-prioritizing capital.Asset sales will be accelerated to exceed a $2 billion target, including partnering for Sasol’s U.S.-based chemical assets.A review of global cost competitiveness and business structure to take into account sustained low-oil-price environment.Re-implementing an active oil-hedging strategy.
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. Costs for the facility surged about 50% above projections to almost $13 billion, fueling a rise in net debt to around $10 billion.
The company, which supplies about 30% of South Africa’s fuel through its gasoline-from-coal plants, had assumed oil prices staying at $50 to $70 a barrel in its revenue projections, and wasn’t hedged for the rest of this fiscal year. Its local fuel prices are determined by international oil costs.
The company 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.”
(Updates with closing share price in fourth paragraph.)
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