Sasol plans to increase its capital in the face of market turbulence
The management of the South African petrochemical group Sasol announced that it is considering a capital increase and the acceleration of its current asset disposal programme, following the collapse of its share price by more than 80% as a result of the coronavirus epidemic and the fall in oil prices.
In its press release, issued on 12 March, the company, while recalling that it has « about $2.5 billion in cash » and expressing confidence in its « ability to generate positive cash flow, even in an environment of low oil prices », acknowledged that it was working on « a series of actions that could strengthen its balance sheet ». Among the measures envisaged were a « renegotiation with creditors », an « acceleration and broadening of its current asset disposal programme », but above all, a « potential capital increase » aimed at « managing short-term financial commitments ». In other words, this possible call on the market would ultimately be used to pay the group’s next due dates to its creditors, i.e. a total of 120 billion rand (USD 8 billion).
An alternative mentioned on 9 March by the insurer Prudential, the petrochemical group’s fourth largest shareholder. « If this environment persists for a long period, it is likely that Sasol will have to both raise new capital and accelerate its asset sale program to repay its debt, » the financial institution’s teams pessimistically predicted in a note. A few days earlier, it was the rating agency Moody’s which, just as worried, downgraded the debt of the South African energy giant (21.8 billion dollars in revenues for the 2019 financial year) into the category of « junk bonds » and therefore highly speculative. A real earthquake for the South African business establishment, Sasol (Suid Afrikaanse Steenkool in Olie, for « South African coal and oil », in Afrikaans) being one of the historic industrial flagships of the Rainbow Nation. Launched in 1950, shortly after the establishment of Apartheid, the petrochemical group was for a long time the only company in the world to produce synthetic fuel on a large scale (the equivalent of 150,000 b/d) from natural gas or coal, which is very abundant in southern Africa.