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Debt-laden chemicals and energy group Sasol announced on Tuesday that it could pursue a $2-billion rights issue as a “supplemental initiative” in the event that cash-conservation initiatives and asset disposals proved insufficient to reset its capital structure.
The JSE-listed group had set a target of securing $6-billion through cash-conservation initiatives and further asset disposals.
Should the rights issue proceed, Sasol indicated that it would probably be executed after its financial year 2020 results. Sasol's financial year runs from July 1 to June 30 and its annual results are reported in September.
The group had entered into a standby underwriting agreement with BofA Securities, Citigroup and JP Morgan Securities in anticipation of entering into an underwriting agreement in respect of a rights issue for an amount of up to $2-billion-equivalent.
Sasol would post a circular to shareholders in order to convene a general meeting of shareholders in around July to approve the necessary resolutions required to implement the proposed rights offer.
The size of the rights issue might be reduced, however, subject to the progress made on the other elements of the response strategy, Sasol added.
In a note to shareholders, Sasol said it needed to enhance cash flow and reposition its balance sheet on the assumption that there would be a sustained low oil price until the end of financial year 2021.
It expressed optimism that it was in a position to withstand recent market volatility in the short term, owing to available liquidity of $2.5-billion and no significant debt maturities before May 2021.
“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.”
The package of measures announced included:
- A cash-conservation programme focused on enhancing cash flow and cost competitiveness in a low oil price environment, with $2-billion cash delivery ahead of the current plan targeted by June 30, 2021;
- An accelerated and expanded asset-disposal programme executed in line with balance sheet, shareholder value and strategic objectives with a view to deliver proceeds significantly ahead of the $2-billion currently targeted;
- Potential for partnering options at Sasol’s US base chemicals assets;
- And a potential rights issue.
"The immediate focus is on the actions to stabilise the company and protect the balance sheet so that the underlying value of the portfolio is not compromised, and instead the potential realised in the interests of all Sasol’s stakeholders," the company said in a statement, which also advised shareholder to exercise caution when trading its shares.