Debt-laden chemicals and energy group Sasol is keeping its rights-issue powder dry, indicating on Wednesday that a final decision on any possible issuance, including its scale, will depend on various factors, including whether or not it is successful in completing yet more asset disposals.
CEO Fleetwood Grobler reported on Wednesday that a “go or no-go” decision on the rights issue would be announced in February, when the group was scheduled to release its interim results for the 2021 financial year.
The JSE-listed firm is aiming to reduce its $10-billion debt burden by $6-billion by the end of its 2021 financial year and has identified a rights issue, which would be capped at a maximum level of $2-billion, as one of the possible funding sources to achieve that goal.
The other two sources include “self-help” measures to save $2-billion, with the first $1-billion in savings achieved during the 2020 financial year, and divestments of higher than $3.5-billion.
CFO Paul Victor reported during a virtual meeting with shareholders on Wednesday that it had already “banked” $3-billion in asset disposals, with $2-billion of that having been secured through the sale of 50% of its base chemicals business at the Lake Charles Chemicals Complex, in the US, to LyondellBasell.
The deal with LyondellBasell was consummated on December 1, resulting in the formation of the Louisiana Integrated Polyethylene JV.
Victor indicated that the decision to proceed with a rights issue during the 2021 calendar year would hinge largely on whether Sasol could increase the value of its asset disposals to about $3.8-billion, as well as whether market conditions remained either constant at current levels, or had improved by February.
He said that he was fully aware of the “overhang” that the uncertainty was creating for Sasol’s share price, but argued that it would be “premature” to remove the rights issue as an option in light of ongoing market volatility.
“Further disposals of $800-million to $1-billion can make a shift in terms of the ticket size of any rights issue.
“So, if we have a high probability of achieving our $3.8-billion asset-disposal target, or at least a significant part thereof, it will contribute significantly in reducing that ticket size, or may even remove the need for a rights issue,” Victor explained during a webinar convened to unveil the ‘Sasol 2.0’ transformation programme, which aims to reposition the group for future financial and environmental sustainability.
He added that, in February, Sasol would also need to assess its debt-covenant headroom, given that the leniency shown hitherto by its bankers in allowing it to breach covenant levels was likely to become increasingly difficult to sustain.
Grobler said the objective of the Sasol 2.0 programme was to move beyond the deleveraging of the balance sheet so as to “reset” the group to be competitive at an oil price of $45/bl and to begin repositioning ‘Future Sasol’ for a low-carbon environment.
Although its capital expenditure outlook for the period to 2025 had been reduced materially to between R20-billion and R25-billion, the figure included scope to further reduce its greenhouse-gas (GHG) emissions and to begin preparing the ground for a reduction of at least 10% in emissions by 2030.
Sasol, he said, would unveil a “significant GHG reduction” in its 2050 roadmap, which would be released at its Capital Markets Day, to be held in mid-2021.