MOSCOW (MRC) -- Sasol expects full year earnings to dip by as much as 20% amid a volatile oil price and the impact of Covid-19, which hit the petrochemicals giant in recent months, reported fin24.
Sasol's shares dived as much as 6% in morning trade following the announcement.
The news of anticipated lower earnings top a turbulent year for the company, in which it has battled several operational crises including the effects of the pandemic on markets where it operates. As part of its response to the crisis, Sasol has drawn up a cash conservation strategy which included a disposal of assets and a potential rights issue of up to USD2 billion.
"Sasol shareholders are advised that implementation of the response strategy is underway, the outcome of which may have a material effect on the price of the company’s securities," the company said in a statement.
The firm's debt burden of R121 billion, which was compounded by the financing of the Lake Charles chemicals project in the US, has also been a source of concern for investors, and there are plans to offload a stake in the project to a partner.
According to Barry Dumas, trading specialist at Purple Group, the slide in earning shows the extent of the Covid-19 pandemic and the impact of the "dramatic downturn in the oil market" on the company.
He added that Sasol shareholders might "come under more pressure if its strategy to mitigate risk, which includes a cash conservation programme, an accelerated and expanded asset disposal and partnering programme fails".
It is not clear which assets might be disposed of, but one investment analyst suggested that non-core assets may be considered. The Johannesburg-headquartered firm had previously put its available liquidity at approximately USD2.5 billion.
Dumas said there was a possibility of a rights issue of up to USD2 billion, which he said remained subject to the progress of other initiatives that might give the company a much-needed boost. Sasol is expected to release annual financial statements on August 17.
As MRC informed earlier, cash-strapped Sasol (Johannesburg) has recently received offers from companies including CP Chem, LyondellBasell, and Ineos for a large stake in Sasol’s Lake Charles, Louisiana, petrochemical complex. The companies are among those moving into a second round of bidding for a stake in the nearly completed complex, which could raise more than 29 billion South African rand (USD1.68 billion) for Sasol.
We remind that 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 under performance 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 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
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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