Sasol to double size of business

‘Under-geared’ chemicals group plans to increase debt ratio by more than 100 times

SASOL plans to tap the capital markets to raise about 100 times its existing debt level to fund its capital expenditure programme, which will double the size of its business in 10 years.

PETROLEUM and chemicals group Sasol will tap the capital markets to increase its gearing ratio by about 100 times as it seeks to fund its ambitious $21bn capital expenditure programme.

Most of the capital for the programme, which will double the size of Sasol’s business in the next 10 years, will be raised by 2016.

Sasol will take its debt levels up to a maximum of 40% of equity, from its current “under-geared position” of 0.3% — a rise of about 100 times, it said last week.

“This low level of gearing is expected to be maintained in the short term but is likely to return to within our targeted range of 20%40% in the medium term, taking into account our growth programme, as well as our progressive dividend policy,” spokesman Alex Anderson said.

Gearing, at R24.8bn at the moment, was likely to reach the target by the 2016 financial year, former chief financial officer Christine Ramon said in June.

The company enjoys investment-grade credit ratings by both Moody’s and Standard & Poor’s.

At current exchange rates and Sasol’s market capitalisation of about R321bn, the planned investments will add about 65% to its value and exceed its R181bn revenue for the year to June.

The company is building a gasto-liquids and chemicals complex in Louisiana in the US. Sasol will produce at least 96,000 barrels a day of vehicle fuel and 1.5-million tons of ethylene from an ethane cracker facility. It is implementing the investments in stages, starting with the ethane cracker plant, estimated to cost up to $7bn.

While it is considering the front-end engineering and design to determine the final cost of the plant, Sasol has already placed orders for equipment and tech- nology to be used in the construction of the plant, which will come into full production during 2017. A final investment decision would be taken during the next calendar year, Mr Anderson said, and would be followed in about 18 to 24 months by a decision on the gas-to-liquids plants.

These will be built in phases after the ethane cracker at an estimated cost of $14bn, and will have the option to produce up to 10% more than the initial capacity.

Sasol will convert the shale gas that has made the US an energy self-sufficient economy into mainly low-sulphur diesel, making it the single largest foreign investor in Louisiana.

It would consider all funding options, it said in its annual report last week, including specific project financing, export credit agency funding, bank loans, and corporate and project bonds.

Some options, however, have already been ruled out. “Equity funding is expensive until projects are commissioned,” Ms Ramon said in the report.

Sasol’s price-earnings ratio of about 9.4 means it would take roughly nine years for it to recoup the value of the equity it would need to issue.

In November last year, Sasol issued a 10-year, $1bn corporate bond at a fixed coupon rate of 4.5% a year, which was oversubscribed by 3.47 times. It said that was the lowest rate yet achieved by a South African company not owned by the state and reflected investors’ confidence in Sasol.