Sasol: What investment experts Shapiro, Logan think about future, renewable energy

Back in March, Sasol provided a detailed plan to reduce its heavy debt, amid cost overruns at its Lake Charles chemicals project (LCCP) and lower oil prices. The plan included raising as much as $6bn by the end of its 2021 financial year and accelerating its asset disposal programme. The vision was also to find potential partners for the LCCP and the company recently agreed to sell a 50% stake in the plant to LyondellBasell. As David Shapiro mentions in this webinar, the company is not out of the woods yet. Sasol is trying to raise as much as $5 billion through further asset sales and might have to consider a rights issue. – Lindiwe Molekoa

Reducing debt

David Shapiro: Well, Sasol is not out of the woods yet. They’ve still got heavy debt, which should never have been there. They’re relying very heavily on selling assets. I think the price – the 50% that they’re getting for the assets – is less than we were expecting. I think the second thing is that they are going to rely very heavily on oil and chemical prices to get through over the next few months. So they are not out of the woods. 

They haven’t completely put aside the fact that they might have to raise money – which could be as much as R30-billion in a rights issue. For me, you don’t have to look for trouble. There are so many other businesses that you can invest in. We’d like to watch it, but I still think there’s issues ahead.

Alec Hogg: Chris, you’ve been a shareholder activist for a while. People might not remember that you were the rockstar investment manager in South Africa when you were running BoE unit trust. Is Sasol, not one of those companies that your shareholder activism should be focused on? Now that they’ve gone and sold off half of their Louisiana investment of over U$10-billion, for just U$2-billion. It kind of crystallises – if you like – the cost of that investment. Is that not something – given that there’s tens of thousands of South African shareholders involved – that you would be wanting to get your teeth into? 

Chris Logan: I wouldn’t mind looking at it. I am keeping tabs on it. What is noticeable – that whole sector – if you go and have a look and see, there is a company called NextEra Energy. It’s just now surpassed ExxonMobil’s market cap. So these things are genuinely running into serious headwinds. You know, Exxon’s a well-run company. I know Sasol’s – just from picking up bits and pieces – project management has been terrible, misaligned incentives and basically apathetic shareholders. I think there are better and easier things to get a handle on quickly.

ExxonMobil bets on oil & gas

Alec Hogg: David, from your perspective. ExxonMobil. It’s down this year from around U$80 a share to – it has lost more than 50% – at U$32 at the moment. We’ve got a really nice podcast from The Wall Street Journal, where they dug deep into ExxonMobil. They’re taking a bet on oil and gas and completely moving away from renewables. 

They’re not interested in renewables at all, which is where you get someone like BP going aggressively into renewables. Is the market maybe over estimating ExxonMobil? And, I’m asking this because Chris is right. When we look at Sasol, we should be looking at their peer group. 

David Shapiro: You’re going to find over the next decade, huge pressure on fossil fuel. The problem is, regardless of whether we use it or not – and we still are going to use it – it’s when you sit in the boardroom and someone attacks you for where you’re going and for your exploration and so on. That’s where the problem is going to be. It’s going to be boardroom problems. I recall once – I think on a podcast, a year or slightly more ago – we were talking about Sasol and we were talking about the benefits and a lady phoned in from Cape Town and got a hold of us because of the issues that Sasol have in Secunda, with clean air. 

Suddenly, we were back-pedalling and having to defend ourselves for the call that we made. That was light compared with what’s going to happen. Whether you like it or not, I think the one thing that’s going to come out of the mood that we’re in at the moment – and I’m talking the pandemic – is that people are going to reflect on their lives. Things are going to hot up against energy companies. So if you’re not in renewables, I think the problems are going to be at boardroom level and you’re going to choose to move away from those businesses. From that point of view, I remain very reluctant, despite the fact that they might be crying out from a value point of view.

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