Debt-laden chemicals and energy group Sasol confirmed on Monday that it was preparing to execute a rights issue during the second half of its 2021 financial year, despite reporting that it was on track to deliver disposals of greater than $2-billion and exceeding its initial cash conservation target.

Sasol reported savings of $1-billion for the year to June 30, 2020, and has indicated that a further $1-billion in savings is targeted for the current financial year.

During a presentation of sharply weaker financial results for 2020, which included impairments of R112-billion and a loss before interest and tax of R111-billion, CEO Fleetwood Grobler described the rights issue as the final step in the group’s “deleveraging pathway”.

In 2019, Sasol reported a profit before interest and tax of R9.7-billion, but its 2020 financial year had been heavily disrupted by the Covid-19 pandemic and a fall in oil and chemicals prices, which underpinned the large impairment charge.

The charge also reflected fair value adjustments at Sasol’s troubled Lake Charles Chemicals Project (LCCP), however, where partnering discussions had been initiated.

The overall LCCP cost estimate – which had increased from an initial projection of $8.9-billion, a rise that lay at the heart of Sasol’s prevailing balance-sheet distress – was said to be tracking the $12.8-billion figure outlined in the group’s most recent guidance.

The JSE-listed group aims to reduce its more than $10-billion debt burden by between $4-billion and $6-billion during its current financial year, which ends on June 30, 2021.

Grobler did not offer fresh insight into the size of the rights issue during a video presentation of the group’s results, saying only that it would be implemented in the second half of the 2021 financial year and once the “amount required is well defined and when we can do so on the basis of a clearer and stronger financial position”.

In an interview with Engineering News he said that a number of management actions would need to be taken over the coming six months before the “ticket size” of the rights issue could be determined, revealing that some large disposal and partnering processes would be announced within weeks rather than months.

The size of the issue would also be influenced by macroeconomic factors, with Sasol currently assuming that Brent crude will trade at between $35/bl and $45/bl this year and for the dollar/rand exchange rate to range between R16 and R17.

In March, Sasol indicated that the rights issue would not exceed $2-billion and that the eventual size of the rights issue would depend on the progress it had made in reducing costs and securing proceeds from an accelerated and enhanced asset disposal programme.

“We think that it is in shareholders’ interest that management does absolutely everything in our power before we ask shareholders for their money,” he said in the interview, adding that the group would, thus, not approach the market before the start of the 2021 calendar year.

ASSET DISPOSALS

The group had completed disposals valued at $1-billion since November 2017, with $600-million of that either concluded or announced during the 2020 financial year.

“I believe we are on track to deliver disposals consistent with our March 2020 objective of beyond $2-billion. We aim to improve the bottom end of the target significantly by the end of financial year 2021,” Grobler said in a recorded presentation of the group’s results.

Besides an agreement to sell 16 air separation units at Secunda to Air Liquide, the sale of a 51% stake in its explosives business to Enaex and a transaction to sell its stake in the Escravos gas to liquids plant in Nigeria, Sasol was focusing on several other large transactions.

Grobler described the partnering discussions for its LCCP base chemicals business as “well advanced”, as were divestment processes for its stake in the Rompco pipeline from Mozambique to South Africa, as well as the Central Termica de Ressano Garcia, also in Mozambique.

The group also confirmed for the first time that it intended selling its phenolic chemicals unit.

“We are pleased with the overall progress made to date . . . in a time of great uncertainty. However, we have been clear that each transaction must help us deliver on both our strategic and financial objectives.”

These objectives were currently being refined into the group’s so-called ‘Future Sasol’ strategy, further details of which would be provided in November.