Sasol’s Inzalo share still top of the pops

FOR a share that is so heavily laden with debt, the recent surge in Sasol Inzalo’s shares to R150 is nothing short of amazing. And a week ago, following the payment of a R2 a share dividend, the price was even higher — at R160.

This suggests a healthy return for the 290 000 black shareholders who paid R18.30 a share for the first 100 Inzalo shares they bought in 2008, when Sasol launched its exclusive black-empowerment scheme. The more Inzalo shares you bought, the more expensive it was, escalating to R36.60 a share.

When Inzalo kicked off with 9.4 million Sasol shares, the petrochemical giant was trading at R400 on the JSE.

But the way in which Sasol structured Inzalo meant that there was R7-billion in debt associated with the scheme — which is partly why the dividend payment took everyone by surprise.

One analyst described the dividend as “good optics but bad finance” as the interest on the debt is growing faster than the income earned by the scheme. The scheme income is derived entirely from dividends declared by Sasol.

The R7-billion was funded through a complex plan involving three different interest-rate charges. Some R792-million of the debt attracted a fixed interest rate of 13.3%, R1-3-billion incurred interest of 11.1%, and the remaining R4.9-billion has a more favourable interest charge, pitched at 217 basis points below the prime interest rate.

Unfortunately for Inzalo, within a few months of its launch the global financial crisis whacked the petrol price and the rand-dollar exchange rate. Sasol’s share price plummeted to R220. For the first time, Sasol did not pay a dividend. (It did resume paying dividends in 2009.)

For the first five years of the Inzalo scheme, the BEE shareholders did not get a dividend. All the dividends paid to Inzalo were used to pay the ever-increasing costs attached to the R7-billion debt. (Since 2011, Inzalo shareholders have been able to trade their shares over the counter.)

Given that the scheme received dividend income of R115-million from its Sasol shares in the six months to December, and that its interest bill was R179-million for the same period, this left a shortfall of R65-million.

It is the strength of the Sasol share price — which recently topped R600— that has buoyed Inzalo.

Even with the chunky R6.9billion of debt, Inzalo now has a positive equity value of R1billion. This is no small feat when you consider there is currently about R440 debt attached to each Inzalo share.

The Sasol Inzalo scheme expires in 2018, when it will sell some of its 9.4 million Sasol shares to pay off whatever debt is remaining. The remaining shares will be distributed to Sasol Inzalo shareholders.

It’s still a risky investment, and hardly the sort of story to justify the heavy demand for this BEE share — unless, that is, there’s someone in the market with a refinancing plan.