Sasol under fire over R15bn project

Another cost blowout at Sasol’s ambitious Lake Charles Chemicals Project of more than $1.1bn (R15.8bn) – in just three months – has sparked investor fury over management’s “reckless” use of shareholder funds.

The shock news hit the market on Wednesday when Sasol announced that the huge Louisiana chemicals project would cost between $12.6bn (R182.57bn) and $12.9bn (R186.92bn), almost 45% higher than its initial estimate of $8.9bn (R128.96bn) at the time the investment was announced in 2014.

In response, Sasol’s share price plunged as much as 15%, wiping about R35bn off its market capitalisation – the biggest fall in 20 years. The stock closed 12.9% down at R375.

As recently as February, Sasol warned that the costs had risen to $11.8bn (R171bn) just four months after telling investors it was on track to cost $11.13bn (R161.3bn).

“Correct me if I’m wrong, but this overrun hasn’t been anything but reckless mismanagement of shareholders’ capital,” said Standard Bank analyst Adrian Hammond on a conference call with Sasol management.

In response, joint CEO Bongani Nqwababa said: “It’s important to look at the long-term because we are confident the fundamentals are robust.”

Once on line Lake Charles will convert gas into chemical products and was viewed as a “game changer” for the company as it will triple the volume of chemicals that Sasol produces in the US. Essentially, the 69-year-old company, which began life using synthetic fuels technologies, will become a mainly chemicals business, like US group DuPont.

But, said Visio Capital director Patrice Moyal, “the implication is that Sasol has invested approximately 75% of its market capitalisation in its largest offshore investment with a clear lack of controls”.