Inzalo: what went awry?

When Sasol unveiled its R26 billion B-BBEE scheme (Inzalo) in 2008, then-group CEO Pat Davies described it as being “unparalleled”.

Sasol sold 10% of its shares to black investors, employees, selected customers, suppliers, franchisees and the Sasol Inzalo Foundation.

Expiry’s nearing and long-suffering investors have been far from rewarded.

Inzalo’s been hit by falling oil prices. It’s accumulated about R13 billion bank debt since inception. This was expected to be serviced from dividend payouts, with management expecting Sasol’s share price to appreciate to at least R480, which would be enough to settle remaining debt after Inzalo expires in September 2018.

This won’t happen, said Paul Victor, Sasol’s CFO, as the scheme was indebted on day one.

Sasol paid R7.6 billion in dividends over the past nine years to Inzalo: R5 billion to banks to service debt and R2.6 billion to employees, suppliers and customers and black investors.

For Craig Gradidge at Gradidge-Mahura Investments, making a judgment call on Inzalo’s value hinges on when investors would cash in shares. “Investors would have paid R25 per share when the Inzalo scheme launched. At some point in the past nine years, shareholders could have sold at R140 per share. In this case, it would have created value for shareholders.”

Some investors cashed in shares at the R20 to R25 level when it migrated from an over-the-counter trading platform to the JSE in 2015. Inzalo’s shares have since traded at between R35 and R42.

In the six months to December 2016, Sasol Inzalo’s debt exceeded total assets by R990 million – theoretically making it insolvent. Sasol plans to write off between R12 billion and R13 billion of the Inzalo bank-funded debt when Inzalo terminates in September 2018.

Sasol’s new R21 billion empowerment scheme, Sasol Khanyisa, will replace Inzalo. Black investors will own at least 25% of Sasol SA assets for 10 years.

Sasol shareholders will need to approve the transaction at its AGM.