Sasol to sell most of Rompco stake

• Group aims to retain 20% holding in Republic of Mozambique Pipeline Investments Company

Energy and chemicals group Sasol has reached a deal to sell most of its stake in a pipeline company in Mozambique for more than R4bn, the latest disposal for a company seeking to address the fallout from its Lake Charles project in the US. With a 50% shareholding in Republic of Mozambique Pipeline Investments Company (Rompco), Sasol is the largest shareholder, with Mocambiçana de Gasoduto and SA’s stateowned iGas each holding 25%.

Energy and chemicals group Sasol has reached a deal to sell most of its stake in a pipeline company in Mozambique for more than R4bn, the latest disposal for a company seeking to tackle the fallout from its Lake Charles project in the US.

Sasol said on Friday it intended to sell a 30% interest in the Republic of Mozambique Pipeline Investments Company (Rompco) for an initial payment of R4.145bn, with the deal also including a deferred payment consideration of R1bn if certain conditions were met by June 2024.

Rompco is a joint venture between Sasol, Companhia Mocambiçana de Gasoduto. (CMG) and the state-owned SA Gas Development Company, known as iGas.

Rompco owns and operates the 865km high-pressure gas pipeline connecting the Pande and Temane gas fields in Mozambique with SA. The pipeline supplies gas to five offtake points in Mozambique and is the primary supply channel for natural gas into SA where it supplies Sasol operations as well as industrial gas users.

With a 50% shareholding, Sasol is the largest shareholder in the venture, with CMG and iGas holding 25% stakes each.

Sasol on Friday said, subject to pre-emptive rights by other shareholders, it has agreed to sell the interest in Rompco to a consortium comprised of blackowned energy investors, the Reatile Group and the Ideas Fund, managed by African Infrastructure Investment Managers (AIIM).

Sasol said it would retain a 20% holding in the pipeline company and would continue to operate and maintain the pipeline, with agreements governing the transport of gas to Secunda being unaffected.

The group had been pursuing asset sales as it seeks to avoid tapping shareholders for cash, amid severe cost overruns at its Lake Charles Project in the US. It had taken a rights issue off the table in February, however, saying it had managed to cut debt by about a third in its six months to end-December.

At the end of December, Sasol had total debt of R126.3bn and cash of R27.1bn, while its market value stood at R148.8bn as of Thursday’s close.

Abdul Davids, head of research at Kagiso Asset Management, said he was surprised at the sale because it is not required from a balance sheet degearing point of view. “Also, a steady gas supply will be critical to Sasol’s synfuels future.”

Jay Vomacka, portfoliomanager at Aeon Investment Management, said he was under the impression that after the partial divestment of Lake Charles and Gemini, a highdensity polyethylene joint venture in the US, paired with the recovery of commodity prices, there was less incentive to sell more assets.

The Rompco stake may actually be a strategic asset, said Vomacka. “Gas is a key component of Sasol’s SA feedstock. The feedstock may actually need to be increased given emission reduction targets.”

Simphiwe Mehlomakulu, chair of Reatile, said the deal was a landmark transaction. “We are excited by the economic potential of increased gas supply to the region and stand ready to support Rompco’s long-term expansion potential.”

The Industrial Gas Users Association of Southern Africa estimates there is a 50% supply deficit of natural gas in SA for industrial uses.

Gas can also be used in electricity generation with materially lower carbon emissions, toxic emissions and environmental impacts when compared to coal, Mehlomkulu said.

“New sources of gas supply transported through the Rompco pipeline could be key to relieving the pressure currently faced by Eskom, and replacing capacity lost through the decommissioning of ageing coal plants in and around Mpumalanga.”

Vuyo Ntoi, MD of AIIM, said the proposed transaction paves the way for further capital raising and investment in the Rompco pipeline to facilitate the crucial expansion of imports. “This will serve to unlock these opportunities for industrialisation and the furtherment of cleaner power generation.”

Sasol said the proposed transaction will be subject to customary conditions precedent, and is expected to become effective during the second half of 2021.

Sasol’s shares have rebounded by more than three quarters so far in 2021, and have risen by more than tenfold from their 2020 low.

In afternoon trade on Friday, Sasol’s shares were down 1.08% to R234.037. Brent crude was up 1.6% at $68.04 a barrel.