Sasol Considers $2B Rights Issue, in Talks to Sell LCCP Assets

Sasol said on Tuesday that it aims to generate $6 billion by the end of financial year 2021 as it seeks to stabilise its balance sheet. The energy and chemicals major is battling high debt, the impact of the corona virus outbreak and falls in oil and chemical prices.

Sasol said it could sell up to $2 billion of shares as it works to ensure it can pay its debt.

It said it would immediately target steps to achieve a cash improvement of about $1 billion by the end of June and another $1 billion in the financial year 2021, which could include headcount reduction and a delay in paying out certain incentives.

Sasol said it would also sell assets above its initial $2 billion target and was already in negotiations with a potential partner over its US Base Chemicals assets, including its troubled Louisiana plant, for a joint venture of up to 50%.

The company claimed that it had liquidity of around $2.5 billion, with no substantial debt maturity before May 2021, and believed that it could withstand short term market volatility.

“The immediate focus is on the actions to stabilise the company and protect the balance sheet so that the underlying value of the portfolio is not compromised, and instead the potential realised in the interests of all Sasol’s stakeholders,” Sasol said in a statement.

Last week, after the fall in oil prices, Sasol shares reached a 21-year low, increasing concerns about their debt levels and pushing them to introduce a strategy to improve their balance sheets.

Investors were concerned about the company’s debt, largely due to delays and cost overruns in its Lake Charles Chemicals (LCCP) project in Louisiana. The projects’ overruns are expected to reach as much as $12.8 billion, up from a 2014 forecast of $8.9 billion.

In an attempt to ensure profitability in a prolonged low oil price setting, Sasol said it would review its global cost competitiveness and business structure.

Sasol entered into a stand-by underwriting agreement with BofA Securities, Citigroup and J.P. Morgan Securities for the rights issue.