BY Paul Burkhardt
Nov. 28 (Bloomberg)
Sasol Ltd., the South African fuel producer, fell the most in almost six years as oil’s slump to a five-year low put pressure on spending plans.
The Johannesburg-based company, which manufactures synthetic fuels from coal and gas, finalized plans last month to build an $8.1 billion plant in the U.S. that will convert natural gas into plastics and other chemicals. Sasol fell as much as 8.3 percent, the most since December 2008, and traded 7.9 percent lower at 463.50 rand by 12:23 p.m. in the city, with trading volume 1.9 times the three-month daily average.
Brent crude extended its decline from a four-year low after the Organization of Petroleum Exporting Countries decided to keep production steady at yesterday’s meeting in Vienna, resisting calls from Venezuela to cut output. Sasol’s revenue is linked to the dollar price of oil.
The drop in crude is the key factor pulling Sasol’s stock lower, Mohamed Kharva, a research analyst for Nedbank Capital, said in an e-mail response to questions. “It’s all a serious concern as they have a huge capex program ahead.”
Sasol fell 10 percent in October and is headed for a 16 percent decline this month. Yields on dollar bonds due November 2022 rose two basis points to 4.41 percent, the highest on a closing basis since June 12. Brent crude was little changed at $72.60 a barrel in London, bringing its decrease this year to 34 percent.
Diversifying Business
“The presently lower oil price does not pose a risk for investors in Sasol’s bond,” Acting Chief Financial Officer Paul Victor said in a Nov. 24 e-mailed response to questions. The fuel producer is considering bringing back an oil-hedging program after years of suspending it because shareholders wanted exposure to crude-price movements, he said.
Sasol needs to raise as much as $7 billion to build the ethane cracker in Lake Charles, Louisiana. The company received offers from a syndicate of international banks for a dollar- based term-loan facility and is entering into binding commitments, Victor said. Sasol expects to reach financial close by mid-December, he said.
While the crude selloff is weighing on Sasol’s stock, moves to diversify operations with U.S. projects will be beneficial, Sean Ungerer, a Johannesburg-based analyst at Avior Research (Pty) Ltd, who rates the stock outperform, said. The chemical facility and a proposed gas-to-liquids plant at the site, which the company will decide on in 2016, are set to gain from a jump in natural gas output from shale formations in North America.
Capital spending over the next three years will increase earnings with less reliance on fuel production in South Africa, “which is good,” Ungerer said in an e-mailed response to questions. – BLOOMBERG
