Sasol raises debt ceiling, reviews jobs and launches new strategy with chems at core

BARCELONA (ICIS)–South Africa’s Sasol has raised its debt ceiling with lenders, plans to abandon oil activities in West Africa and will review jobs as the troubled company refocuses on specialty chemicals, gas and renewables.

The company said on Thursday it has negotiated an increase in debt covenants from December from three-to-four times (3x, 4x) net debt in relation to earnings before interest, tax, depreciation and amortization (EBITDA). It was granted a waiver for its June covenant.

Sasol now has to prioritise debt reduction and has agreed to no dividend payments or acquisitions while leverage remains above 3x net debt/EBITDA.

The company’s credit rating was downgraded by two notches earlier this year, adding around $40m to annual interest payments.

In March, it launched a rights issue aiming to raise $6bn in cash by the end of 2021.

Sasol said on Thursday it has liquidity headroom above $1bn.

The company has been under severe financial pressure since it invested in the Lake Charles 1.5m tonnes/year ethane cracker project in the US.

The cost of the project has risen from $9bn to up to $12.9bn and it has been subject to several delays in start-up and smooth running.

These problems led to the resignation of the Sasol’s two co-CEOs in October 2019.

It is now seeking partners for this project, and has attracted at least five bids, according to a financial source.

These would include INEOS, LyondellBasell, and Chevron Phillips Chemical which are proceeding into a second round of bidding for a stake in the complex.

Sasol said today that the project’s Zeigler alcohol and ethoxylates unit came onstream on 16 June while the Guerbet alcohols facility is due on stream imminently.

Remediation work on the 420,000 tonnes/year low density polyethylene (LDPE) unit is progressing with production expected before the end of the third quarter of 2020.

The plant had originally been scheduled to start-up in 2019 but faced delays into H2 2020 following an explosion and fire at the site on 13 January.

Collapsing oil and chemical prices and falling demand have also hurt the company as the coronavirus pandemic spread around the world.

In April, it announced significant cuts to capital expenditure, a freeze on company pension fund contributions, and salary cuts for managers. It also has an accelerated asset disposal programme.

The company said on Thursday that after South Africa’s lockdown was eased on 1 June it has ramped up production at units which had been closed by falling demand for fuel and chemicals.

These include ammonia, nitric acid and chlor-vinyl plants in Sasolburg which restarted in May.

NEW BUSINESS MODEL
Sasol said its new business model, called Sasol 2.0, will focus on specialty chemicals where it has differentiated capabilities and strong market positions which can be expanded over time.

The energy business will comprise the Southern African value chain and focus on gas as a key feedstock, with renewables as a secondary energy source.

All oil growth activities in West Africa will be discontinued.

“The reset of the strategy necessitates a revised operating model, which is still under development and will be announced in the second quarter of financial year 2021,” it said in a statement.

There will be a strong focus on cash generation; and the two market-facing divisions each responsible for their own profit and loss, management of resources, and development.

“A focused and robust review of the business, and the associated workforce structures, is underway and a detailed update will be provided to stakeholders alongside the full year results,” it said.

These are due to be published in September.

Sasol is currently a major coal producer, with the company championing coal-to-fuel and chemicals  production using the Fischer-Tropsch process after the second world war.

It was number 48 in the 2019 ICIS Top 100 Chemical Companies, with 2018 chemicals revenues of $7.56bn.

Sasol’s share price was down 6.4% to $7.80 on the New York Stock Exchange at 14:30GMT.