MOSCOW (MRC) -- Debt-laden Sasol (Johannesburg) says that it is in "active discussions" on a potential partnering of its US base chemicals assets, principally the Lake Charles Chemical Project (LCCP) in Louisiana, the escalating costs of which are the main cause of its financial problems, reported Chemweek.
The size of the rights issue, which would take place after the reporting of the financial year 2020 results, could be reduced, depending on the progress made on the other elements of the recovery program.
Sasol also said that it aims to generate USD6 billion by the end of its 2021 financial year, through 30 June 2021, by a combination of measures, including a potential USD2-billion rights issue of new shares, accelerated asset sales significantly ahead of the current USD2-billion target, and a cash conservation program targeted at a further USD2 billion of operational savings.
The company is targeting immediate measures to deliver approximately USD1 billion in cash by the end of its current financial year, including approximately USD800 million to be realized from working capital optimization and reprioritizing capital expenditure, and another USD200 million from cost savings. In financial year 2021, it expects to save USD700 million from reprioritizing capital expenditure and working capital, and another USD300 million from cost savings and business optimization.
Sasol’s shares dropped last week, falling to a 21-year low after oil prices plunged, raising concerns about its around $8-billion debt level following delays and cost overruns at the LCCP. "The immediate focus is on the actions to stabilize the company and protect the balance sheet so that the underlying value of the portfolio is not compromised, and instead the potential realized in the interests of all Sasol's stakeholders," Sasol says.
In a note to shareholders, Sasol said it needed to enhance cash flow and reposition its balance sheet on the assumption that there would be a sustained low oil price until the end of financial year 2021. It said that it can withstand recent market volatility in the short term, owing to its available liquidity of $2.5 billion and no significant debt maturities before May 2021. “Sasol believes it can maintain liquidity headroom in excess of $1 billion over the next 12 to 18 months with a $25 per barrel oil price before the benefits of hedging,” the company says. It adds that the global portfolio of its foundation business remains cash-positive under prevailing spot market conditions.
Sasol has entered into a standby underwriting agreement for the rights issue with BofA Securities, Citigroup, and J.P Morgan Securities. It intends to convene a general meeting of shareholders around July 2020 to approve the issue. It is also in discussions with lenders about additional flexibility in its debt covenants to improve balance-sheet flexibility in financial year 2021.
As MRC reported earlier, in mid December 2019, Sasol announced that the LCCP Ethane Cracker was increasing production rates following the successful replacement of the acetylene reactor catalyst. Sasol’s Ethane Cracker with a nameplate capacity of 1.54 million tons per year achieved beneficial operation in August 2019 but has run approximately 50-60% of nameplate capacity due to underperformance of the plant’s acetylene removal system. The company stated that the issue had been resolved then.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.
Sasol is an international integrated chemicals and energy company that leverages technologies and the expertise of our 31 270 people working in 32 countries. The company develops and commercialises technologies, and builds and operates world-scale facilities to produce a range of high-value product stream, including liquid fuels, petrochemicals and low-carbon electricity.
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