Ratings agency S&P Global Ratings has affirmed petrochemicals company Sasol’s BBB-/A-3 credit rating, but fellow ratings agency Moody’s has downgraded Sasol’s credit rating to Ba1/NP, the latter reflecting the company’s elevated leverage in the context of volatile market conditions.
The ratings decisions were taken after the completion of the agencies’ periodic review of Sasol following the release of the company’s interim financial results for 2020.
Sasol confirmed in its recent financial results that “protecting the balance sheet remains an important priority during the peak gearing phase”.
In this regard, the petrochemicals company said several proactive actions had already been taken, which included a measured financial risk management programme to hedge oil and ethane commodity price and exchange rate exposures, managing costs, increasing working capital efficiency and agreeing to additional flexibility on covenants with the lending group.
The initiatives were said to continue benefitting the balance sheet with further actions under way, and included re-phasing discretionary capital, ongoing delivery of the value-driven asset disposal programme and active balance sheet management to maintain a healthy liquidity position and a balanced debt maturity profile as Sasol works to restore an optimal capital structure.
Sasol on Friday said it maintains a long-term commitment to an investment-grade credit rating, adding that, subject to the macroeconomic environment and the impact of Covid-19 on global product demand, it continues to expect the cash flow inflection point to be reached in the second half of the 2020 financial year and the de-leveraging to start thereafter.
The overall Lake Charles Chemicals Project (LCCP) cost estimate is tracking at $12.8-billion, within the company’s previous guidance of between $12.6-billion and $12.9-billion.
LCCP is expected to be earnings before interest, taxes, depreciation and amortisation (Ebitda) positive in the second half of the 2020 financial year, with a contribution of between $50-million and $100-million for the financial year.
Sasol CEO Fleetwood Grobler acknowledged that the company “recognises the challenges presented by the current market environment and acknowledges the outcomes of the rating agency reviews”.
“We remain focused on managing the factors within our control – delivering safe, strong and stable operational performance and protecting the balance sheet as we bring the LCCP to completion and start deleveraging. The revised rating profile is not expected to have a material impact on our existing funding costs,” he commented, noting that Sasol remains committed to its capital allocation framework and priorities.