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Sasol headquarters in Sandton.
- Shareholders are expected to vote on the transaction at a meeting on November 22.
- The transaction is expected to reduce net debt before lease liabilities from approximately $ 10 billion to $ 8 billion.
- Chief Executive Officer Fleetwood Grobler said the joint venture was a “big step forward” for the company.
The recently announced joint venture between Sasol and LyondellBasell on their Lake Charles Chemicals project gives the company much-needed breathing space to stabilize its limited balance sheet and reduce debt.
The 50:50, $ 2 billion partnership with the multinational chemical company was unveiled on Friday, months after Sasol announced it was seeking a partner on the project that has been hit by cost overruns and faces closure. temporary due to the impact of Hurricane Laura in August.
The transaction is expected to be finalized by the end of the year, according to CEO Fleetwood Grobler, who expressed confidence that the company does not anticipate any concerns regarding the transaction, which is still subject to shareholder and antitrust approval.
Shareholders are expected to vote on the transaction at a meeting scheduled for November 22.
Fleetwood described the transaction as “a major step forward” for the company in its quest to stabilize its balance sheet, which has faced increasing pressure from fluctuating oil prices and the impact of Covid-19, which affected the demand for oil.
“Our goal is to close the transaction before the end of 2020 … we do not anticipate any particular concerns,” he said, warning that some regulatory processes may take longer.
“There is a risk that it will fall in early 2021,” he added.
“We are advancing our Sasol 2.0 initiative to support re-establishing the organization to be sustainable and profitable in the low price environment,” said Grobler.
The transaction is a critical part of Sasol’s response plan to reduce net debt, improve debt covenant compliance and improve liquidity. As a result of this transaction, net debt before lease liabilities is expected to decrease substantially from approximately $ 10 billion to approximately $ 8 billion.
Sasol said the intent of the transaction was “to generate significant income to apply to outstanding debt,” while enhancing the return on investment in Lake Charles.
In recent months, the company has been unloading its assets, including the sale last month of an air separation unit to Air Liquide SA for 8.5 billion rand.
The proceeds from the Lake Charles transactions and other sales will contribute to net debt reduction by about $ 3 billion.
Zaid Paruk, a portfolio manager at Aeon Asset Management, said the $ 2 billion price tag for the 50% stake demonstrated the financial impact the company received in the controversial project financing that led to huge cost overruns.
“It crystallizes the losses that the company incurred in the construction phase, that is the key point of the transaction,” he said, adding that it also relieves the pressure of the company’s debt in the short term.
Paruk said the focus now shifts to the $ 2 billion royalty issue that is being considered by the company. Lake Charles was approved in 2014 at an estimated cost of $ 8.1 billion, but it has overcome the company’s worst-case scenario and is now expected to cost $ 12.9 billion.
The funding fiasco cost former co-CEOs Bongani Nqwababa and Stephen Cornell their jobs, although the executives were not found guilty of any wrongdoing.
The joint venture allows Sasol to retain ownership and operation of the US performance chemicals business and the remainder of the vacant lot in the Lake Charles complex. The basic chemicals manufactured at the plant include ethylene and polyethylene products.
Sasol’s share price closed 3.4% lower on Friday, after recovering from a rand 115.82 drop in afternoon trading.
