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- Sasol hopes it will emerge from its decline and regain its place as one of the top front-line companies.
- The company’s planned rights issue, estimated at around $ 2 billion, is still on the table.
- Units of the hurricane-hit Lake Charles Chemicals project in the US are expected to be back online in late October.
From being crippled by difficult market conditions to suffering the brunt of natural disasters in the US, Sasol’s production levels in the first quarter of financial year 2021 reflected the mixed fortunes the company has experienced in the recent past.
The three-month operating period through the end of September saw a drop in production levels at the U.S. liquid fuels, mining and chemicals operations compared to the corresponding period when it came to light. the extent of cost overruns at the Lake Charles Chemicals Project. , which forced the company, in August 2019, to delay the announcement of its annual financial statement.
The financial cost of the $ 13 billion investment, which has been repeatedly hit by delays, including hurricanes, is a major contributor to the company’s financial challenges, which led it to sell a 50% stake in the company. unit to LyondellBasell for $ 2 billion.
The Natref refinery had to close in April due to low demand for gasoline and jet fuel during the shutdown. The facility, which is jointly managed with Total SA, experienced an 18% decline in production in the first quarter as the lockdown hit demand for gasoline and jet fuel to unprecedented levels due to travel restrictions and ban on air travel.
The refinery facility is expected to increase crude rates later in the financial year as lockdown restrictions are eased.
The current financial and operational challenges facing the 70-year-old firm are sure to keep CEO Fleetwood Grobler on his toes since he took over as leader, following the resignation of joint executives Bongani Nqwababa and Stephen Russell Cornell in 2019 over Lake Charles. debacle.
Grobler is driving structural changes at the company, which has been offloading its premium assets in an attempt to plug its R189.7 billion debt hole. He is optimistic that the company will emerge from the financial depression as a stronger business.
He said that by the time the company completes its financial 2025 restructuring plan, Sasol would have restored its first-class stock status and an asset-optimized dividend-paying entity.
“I think the company would be a new force to be reckoned with compared to the competition … and it would be a viable and competitive investment destination,” Grobler said.
But the company has a mountain to climb before returning to its former glory, given the challenge of debt and its unpredictable operating environment, which is heavily exposed to volatile commodity prices and environmental headwinds.
After being hit by Hurricane Laura, which forced the Lake Charles complex to close due to storm damage, production at the chemical facility will take a hit in the last three months.
Laura was followed by Hurricane Delta, which struck on October 9 and hit the power supply to the plant, disrupting activity, with sales volumes 28% lower.
The project, initially intended to strengthen Sasol’s position as a global chemical company, has added more problems to the company than profits, starting with its development costs, which soared from an estimated $ 8.1 billion, when it was approved in 2014, at $ 12.9 billion.
“Our preliminary assessments indicate that there was no further damage as a result of Hurricane Delta, and a coordinated commissioning of the complex is underway. All units that were in operation prior to Hurricane Laura are expected to be back in operation by late October 2020, “the company said Thursday, giving a development update.
Focus on better returns
Commenting on the weather risks that have devastated Sasol in recent times and the prospects for Lake Charles, Meryl Pick, director of equity research at Old Mutual Investment Group, said the Chemicals Project was unlikely to offer the attractions. expected returns when the project was approved in 2014.
“This is due to huge cost overruns during the construction phase, a deteriorating global growth outlook weighing on chemical prices and increasing environmental pressure on the plastics industry,” Pick said.
Pick added that the decision to embark on a joint participation in the chemicals project relieves some downward pressure on returns for the group going forward.
“Sasol will focus its efforts on generating better returns from the niche performance chemicals operations in Lake Charles, of which they will remain the sole owners,” he said.
Chief Financial Officer Paul Victor said the rights issue was a decision the company was still considering, noting that by early December it would be possible to form an opinion of where the company stands in terms of the rights issue, which it was estimated at around $ 2 billion.
“We would probably be more at the lower end of the range as long as the market falls short of the high ticket size. It is still in the works and we are making good progress,” Victor said.
The sale of a stake in Lake Charles was seen as an offer for the company of room to maneuver around its mountain of debt of R189.7 billion.
Sasol’s shares fell 2% on Thursday afternoon to R98.98.
