Sasol calls off rights issue

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The energy and chemicals group has managed to cut debt by conserving cash and selling non-core businesses.

Sasol has called off a $2bn rights issue after it managed to slash debt by selling non-core businesses and conserving cash. Although oil prices have recovered and the macroeconomic outlook has improved, it’s not paying an interim dividend as it continues to de-gear.

The energy and chemicals group reported a big improvement in first-half earnings as it continued to implement its response plan to Covid-19 and last year’s weak oil price. Turnover rose 7.3% to R112bn for the six months to end-December. Earnings before interest and tax more than doubled to R21.7bn but adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 6% to R18.6bn. While headline earnings per share (HEPS) tripled to R19.16, core HEPS fell 15% to R7.86 after taking a number of factors including gains on exchange rates, derivatives and hedging instruments into account.

The company benefited from a number of positive non-cash adjustments for the period, including unrealised gains of R5.4bn on the translation of monetary assets and liabilities due to the strong rand; unrealised gains of R4.7bn on the valuation of financial instruments and derivative contracts; and a R3.3bn gain on the realisation of its foreign currency translation reserve, mainly on the divestment of a 50% interest in its base chemicals business at Lake Charles. Late last year, Sasol sold the stake to LyondellBasell Industries, which will operate the joint-venture assets and market the polyethylene products on behalf of the two shareholders.

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Sasol said reducing debt on its balance sheet would continue to be a priority to ensure that it operated within its financial covenants. Although last year’s weak crude oil and chemical prices, as well as Covid-19, impacted its cash flows, it said it was still able to repay about R28bn of debt as it conserved cash and sold non-core businesses. At the end of December, total debt was down to R126bn from R190bn in June.

A decision was made not to pursue a rights issue given the current macroeconomic outlook, and the significant progress made on our response plan initiatives,” Sasol said. “The balance sheet deleveraging pathway will continue to be prioritised to ensure that we operate within our financial covenants and maintain adequate liquidity headroom, whilst delivering the Sasol 2.0 transformation programme.”

Sasol said it was going ahead with a $760m project in partnership with Mozambique’s government to build a 450-megawatt gas-fired power plant and a liquefied petroleum gas (LPG) facility. The balance of the gas produced would be exported to South Africa to sustain its operations.

The PSA (production sharing agreement) development underpins Sasol’s gas transformation strategy by securing additional gas supply from southern Mozambique into Sasol’s gas value chain starting 2024 and serves as a cornerstone in addressing Sasol’s sustainability agenda,” the company said.

Sasol’s shares fell 0.8% to R201.39 yesterday. They’ve gained 50% this year.

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